2020 (9) TMI 630 - HC - Income Tax

High Court upholds ITAT decision granting LTCG exemption under Section 10(23FB)

Principal Commissioner of Income Tax 6 Versus Shri. Gopal Srinivasan

The Madras High Court upheld the decision of the Income Tax Appellate Tribunal, ruling in favor of the assessee's entitlement to exemption under Section ... Entitled to the exemption u/s 10(23FB) - Security Transaction Tax [STT] liability was borne by the Venture Capital Fund and not by the assessee - HELD THAT:- Under Section 115U(5) the income received by the Venture Capital Fund is taxable on accrual basis, whether distributable or not to the investor and therefore, the exemption under Section 10(38) is not claimed on the distribution as stated by the Assessing Officer in its order. This submission was taken note of and the CIT(A) has recorded the factual finding that STT paid on the transaction is borne by the assessee and the same was debited to the account of the assessee by the Venture Capital Fund as admitted by the Assessing Officer himself in the Assessment Order. Taking note of the decision of the Delhi Tribunal in the case of Japan International Cooperative Agency [2016 (2) TMI 882 - ITAT DELHI] the issue was decided in favour of the assessee. The correctness of the factual finding recorded by the CIT(A) was tested by the Tribunal as well as noting the provision of Section 10(23FB) and Section 115(U) . After taking note of the factual position, the Tribunal affirmed the order passed by the CIT(A). Thus we find there is no Substantial Question of Law arises for consideration in this appeal as the entire matter revolves on factual aspects which was not only endorsed by the AO while denying the relief. This error was corrected by the CIT(A) and affirmed by the Tribunal. Hence no ground is made out by the Revenue to interfere with the order passed by the Tribunal. - Decided against revenue. Issues:1. Entitlement to exemption under Section 10(23FB) despite STT liability borne by Venture Capital Fund.Analysis:The appeal before the Madras High Court involved a dispute regarding the entitlement to exemption under Section 10(23FB) of the Income Tax Act, 1961. The Revenue challenged the order of the Income Tax Appellate Tribunal, which remanded the matter to the Assessing Officer for reconsideration. The core issue was whether the assessee, an individual and Director of a Public Limited Company, was entitled to exemption on Long Term Capital Gain (LTCG) received from the ICICI Emerging Sector Fund despite the Security Transaction Tax (STT) liability being borne by the Venture Capital Fund and not by the assessee.The Assessing Officer had initially denied the exemption, stating that the STT liability borne by the Venture Capital Fund precluded the assessee from claiming the benefit under Section 10(23FB). However, the CIT(A) and the Tribunal disagreed, directing the Assessing Officer to consider the claim under Section 10(23FB read with Section 115U of the Act. The Tribunal emphasized the provisions of Section 115U(1) and 115U(3) regarding the tax treatment of income accruing to investors from Venture Capital Funds.The Revenue contended that the Tribunal erred in allowing the exemption despite the STT liability arrangement. The Court noted that the factual issue of STT liability was thoroughly considered by the CIT(A) and affirmed by the Tribunal. The assessee argued that the STT paid on the transaction was borne by them, as confirmed by the Assessing Officer. The CIT(A) also relied on a decision of the Delhi Tribunal in favor of the assessee, further supporting the claim for exemption under Section 10(38) of the Act.Ultimately, the Court found no substantial question of law to consider, as the matter primarily revolved around factual aspects. The Tribunal's decision, based on the correct interpretation of the relevant provisions and factual findings, was upheld. Therefore, the appeal by the Revenue was dismissed, and no costs were awarded.In conclusion, the judgment clarified the application of Sections 10(23FB), 115U(1), and 115U(3) in determining the tax treatment of income from Venture Capital Funds and affirmed the entitlement of the assessee to exemption based on the factual findings and legal provisions presented during the proceedings.