TMI Blog2009 (11) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... tal fund and was registered with Securities and Exchange Board of India (SEBI) and therefore, the assessee's income was exempt under s. 10(23FB) of the Act. According to the AO s. 10(23FB) clearly prescribed that the sole purpose of the funds raised by the trust must be to make investment of funds raised in the "venture capital undertakings". Therefore, it is clear that fund is prohibited from making any types of investments, because making of any other type of investment would mean that fund has not satisfied the conditions laid down by the Act for it to qualify as venture capital fund. He further observed that if such fund is making investment of any other type also, it will certainly not remain as a fund which can be said to have been set up for making investment in the venture capital undertakings. According to him this conclusion was further supported by the conditions of the certificate prescribed by SEBI under regn. 8 of Securities and Exchange Board of India (venture capital funds) Regulations 1996, which is extracted as under: "8. The certificate granted under regn. 7 shall be inter alia subject to the following conditions, namely- (a) the venture capital fund shall ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Corporation (1993) 110 CTR (Ori) 333 : (1993) 201 ITR 729 (Ori)." 6. It is not clear whether according to him the assessee was entitled to exemption in respect of interest but since he has dismissed the ground and the narrative part of above para also shows that he was of the view that assessee is not entitled to exemption and, therefore, we shall proceed accordingly. 7. Before us Shri P.J. Pardiwala, learned counsel for the assessee, referred to the provisions of s. 10(23F) and 10(23FA) and pointed out that before s. 10(23FB) was brought on the statute these two provisions were governing the exemption of various incomes in the case of venture capital funds or venture capital company. He emphasized that careful reading of these provisions would show that earlier only income by way of dividends and long-term capital gains of the venture capital fund was exempted under s. 10(23F) and s. 10(23FA). Later on w.e.f. 1st April, 2001 s. 10(23FB) was introduced and at the same time a proviso was inserted in s. 10(23FA) making it clear that provisions of s. 10(23FA) would be applicable only upto 31st March, 2000. Therefore, it is clear that after that date the exemption in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and submitted that expression from "investment" has been substituted for "set up to raise funds for investment" by the Finance Act, 2007 w.e.f. 1st April, 2008. Therefore, upto the asst. yr. 2007-08 any income of the venture capital company for venture capital fund would be exempt and the rider that such income is coming from "investment" would be operative only from asst. yr. 2008-09. 9. Learned counsel for the assessee also referred to the Speech of the Finance Minister delivered on 29th Feb., 2000 [reported at (2000) 159 CTR (St) 1 : (2000) 242 ITR 1 (St)], copy of which has been placed at pp. 136 to 139 of the paper book and pointed out that how the Finance Minister emphasised the liberalization of tax treatment of venture capital fund and had also proposed complete 'pass through' for such Venture Capital Companies which means whatever income is generated by the Venture Capital Companies or venture capital fund were to remain exempt in the hands of such organization but would be taxed when such profits were distributed to the investors under s. 115U of the Act. 10. Coming to the case law, he submitted that though the learned CIT(A) has based his conclusion on the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al position of the case, Shri Pardiwala, learned counsel for the assessee, explained to us the working of the venture capital fund. He explained that for starting a new business there is always a requirement of capital and when such business is started by large houses they may be financed directly by the group companies etc. In case of medium and small businesses capital is scarce and for that there is a role for Venture Capitalist. There are some people in the market who start their funds such as venture capital funds and appoint well qualified investment managers on whose advice high networth individuals, financial institutions etc. contribute the funds in such venture capital fund, which, in turn, invests such funds generally in new start up business by way of loans or taking part of the equity which could generate high returns in the future. He further explained that similarly the assessee fund was set up and it identified various propositions where investments were required to be made. These proposals are put before the investors who in turn commit certain investments and enter into commitment agreements for making contributions. Income generated from such investments after de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been made. Therefore, this interest income has been generated as a stop-gap arrangement and not as a measure of investment. In any case, this income will also be distributed to the investor of the funds and considering the "pass through concept" as given by the Hon'ble Finance Minister and considering the provisions of s. 10(23FB), which refer to any income even this income is totally exempt. 15. On the other hand, the learned Departmental Representative submitted that the main intention of s. 10(23FB) was that exemption was available to the venture capital company or venture capital fund only against the investments made in the venture capital undertakings. He also referred to para 139 of the Speech of the Finance Minister which amplifies a clear intention of the legislature that income of venture capital funds or venture capital undertakings was made exempt to encourage the investment in the venture capital undertakings. The idea was riot to give exemption to the venture capital fund or venture capital undertaking to generate income from interest on FDRs. Then he referred to the provisions of s. 10(23FB) and pointed out that though the words "from investment" have been ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... away the power of the civil Court to call for documents etc. Under the old provisions of s. 53 all particulars contained in any statement, return furnished or documents and affidavits, etc. were to be treated as confidential and the Courts have no power to call for the same notwithstanding anything contained in any other law. This restriction was removed by the amended provision which was amended in 1976. However, at p. 681 of the Report after quoting s. 53, the following observation has been made: "The same is now substituted by the new s. 53(1)(a)(i) and (ii) with retrospective effect which reads as under." Thus, it is clear that new provision was made retrospective by the Amending Act itself. Therefore, we do not agree with the proposition that substitution of a provision would take effect from the original date of the Act particularly in the context of IT Act. All of us are aware that in IT Act various amendments are carried out by changing various provisions particularly the limits etc. by various Finance Acts on early (yearly) basis. The Finance Act generally gives the date from when a particular provision is going to take effect. Various exemptions are provided and it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital 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; (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; and (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 Board of India Act, 1992 (15 of 1992) and notified as such in the Official Gazette by the Board for the purposes of this clause." 20. The words "set up to raise funds for investment" have been substituted by "from investment" by the Finance Act, 2007, w.e.f. 1st April, 2008. By this substitution, in our humble view the inference would be that any income of a venture capital company or venture capital fund would be exempt only if it is generated from investment in venture capital undertakings. Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommodities any assessment year commencing on or after the 1st day of April, 1972 or the previous year in which such authority was constituted, which ever is later." 21. The reading of the above provision would make it clear that the legislature has either mentioned various incomes which are exempt for example in the case of s. 10(20)-income from house property, capital gains, income from other sources and income from trade or business is exempt. Alternatively, the legislature has given a blank exemption, for example in the case of s. 10(22) where any income in case of a university etc., was made fully exempt. In some cases, restrictive expression has been used for example in case of s. 10(29) the income of an authority for marketing commodities only income derived from the letting of godowns or warehouses for storage, etc., has been provided to be exempt. Thus the legislature in its own wisdom has provided exemption in various formats and in some cases either whole of the income is provided to be exempt or income from particular sources is provided to be exempt or income derived from particular activity is provided to be exempt. The above aspects stand further clarified by the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the general provision. Reference was made to other provisions also where no such embargo was there. Therefore, it is clear that if there is no restrictive expression is employed in the said section and the section is Wide open employing only the expression "any income from" then exemption has to be allowed on all the incomes to such an assessee who is eligible for such exemption under a particular provision. Sec. 10(23FB) at the relevant point of time reads as under: "(23FB) any income of a venture capital company or venture capital fund set up to raise funds for investment in a Venture Capital Undertaking." 22. Thus, under this provision exemption is available on any income to a venture capital fund or venture capital company, which has been set up to raise funds for investment in venture capital undertakings. Perhaps the legislature has itself noted the situation which is there in the case before us that there may be circumstances where income may be earned from other activities for example income from interest and therefore, legislature has incorporated the restricted expression by substituting the words "set up to raise funds for investment" by "from investment" w.e.f. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-2001 5,35,22,393 13-06-2001 50,00,000 4,85,22,393 15-06-2001 1,30,00,000 3,55,22,393 15-06-2001 44,00,000 3,11,22,393 15-06-2001 3,00,00,000 11,22,393 04-07-2001 3,00,00,000 3,11,22,393 16-07-2001 6,00,000 3,76,22,393 20-07-2001 6,00,00,000 9,76,22,393 20-08-2001 5,00,00,000 4,76,22,393 19-10-2001 3,00,00,000 1,76,22,393 19-10-2001 40,00,000 1,36,22,393 17-01-2002 1,35,00,000 2,71,22,393 23-01-2002 1,50,00,000 4,21,22,393 08-02-2002 1,50,00,000 2,71,22,393 08-02-2002 1,35,00,000 1,36,22,393 08-02-2002 26,08,878 1,10,13,515 08-02-2002 25,00,000 85,13,515 31-03-2002 5,78,002 79,35,513 -------------------------------------------------------- 26. From the above chart it becomes clear that at the beginning of the year a sum of Rs. 5.35 crores w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empt and such venture capital undertaking itself has been defined in s. 10(23FB). Under cl. (ii) of s. 10(23FB) venture capital undertaking was eligible if it was engaged in the business of providing services. According to the AO M/s Shringar Films (P) Ltd. and M/s Shringar Cinemas (P) Ltd. were not engaged in providing services and therefore, income from such venture capital undertaking was not exempt. This view has been confirmed by the learned CIT(A). However, before us both parties agreed that in this year no income has been received from the venture capital undertakings and no addition has been made accordingly. Therefore, we are of the view that this ground is only of academic nature and decline to adjudicate the same and leave this question open. 28. As far as the third issue is concerned, the main submission of the learned counsel for the assessee was that if exemption was denied to the assessee venture capital fund by holding that interest income was not for earning such income has to be allowed in accordance with law. He had clarified that if exemption was held to be allowable then this ground would become infructuous. Since we have allowed exemption in respect of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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