TaxTMI 
TaxTMI 
2011 (3) TMI 387
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....s of section 10(23FB) of the I.T. Act, 1961. The assessee is established to generate high level return by making privately negotiated equity, equity/related and other permitted instruments of venture capital fund. The main object of the assessee trust is to carry on the activity of venture capital fund which inter alia includes make investment in entities engaged in real estate sector. In pursuance of the object for which it is established and set up the assessee has been raising funds from various investors under various schemes by complying various guidelines issued by SEBI being VCM regulations. 3.1. The assessee has filed their return of income for A.Y. 2006-07 on 31.7.2006 declaring NIL income by claiming exemption u/s. 10(23FB) of the Act. The Assessing Officer held that as per the provisions of section 10(23FB) exemption is available only in respect of income of a venture capital company or venture capital fund set up to raise funds for investment in a venture capital undertaking. Thus in order to be eligible for exemption u/s. 10(23FB), the assessee ought to be fulfilling the following conditions: (i) The assessee should be a Venture Capital Company or a....
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....or which it is set up viz., raising funds for investment in VCUs. Thus there is a clear distinction in the provisions of both these sections. We wish to respectfully submit that section 10(23FB) has enlarged the scope of exemption of income of a VCF. However even if one seeks to go by the intention of the legislature in case of section 10(23FB) the intention of the legislature was to extend the exemption to the entire income of a VGF which is set up to raise funds for investment in VGUs as is evident from the Finance Minister's Speach (243 ITR 46 Statutes) (pages 24 and 25 of paper book) in the Lok. Sabha dated May 3, 2000 while moving the Finance Bill 2000-01 for consideration of the House, which states as under: "Venture Capital Fund shall enjoy a complete pass through status. There will be no tax on distributed or undistributed income of such funds. The income distributed by the funds will only be taxed in the hands of investors at the rates applicable to the nature of income". In light of the above, it is clear that the intention of the legislature is to treat the entire income of VCFs as exempt from tax under section 10(23FB) irrespective of its n....
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....d the claim of the assessee by observing as under: "I have carefully considered the submissions of the AR of the appellant perused the order of the AO and the facts of the case. The appellant is a trust formed under Indian Trust Act and also registered as Venture Capital Fund (VCF) with the Securities and Exchange Board of India under the SEBI (Venture Capital Fund) Regulations, 1996 (The SEBI VCF Regulation). The object of the trust is to carry on the activities of venture capital fund by making investment in entities engaged in the Real estate. In the assessment for the year under consideration the appellant has claimed exemption u/s. 10(23FB) of the act in respect of profit on sale of mutual fund units and interest on bank deposit amounting to Rs.1,00,91,000/- and Rs.16,09,000/- respectively under the head income from business and profession and income from other sources. The AR of the appellant has relied upon the various judicial pronouncements in the paper book submitted and has also relied on the judgment of Mumbai Tribunal "F" Bench in Appeal nos. ITA 3912 and 4095/M/2006 in the case of ITO, v. Marigold Mezzanine Investment Funds and ITA No. 7157/Mum/2005 dated 5.....
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.... the earlier provision where the expression used was set up to raise funds for investment. Whenever the legislature wanted to make particular items of income or sources of income to be exempt then it has been clearly provided in various provisions. In this regard the reading of section 10(20) 10(21) 10(22) 10(23) 10(23fa) and 10(29) would make things clear. The reading of these provisions would make it clear that the legislature has either mentioned various incomes which are exempt for example in the case of section 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 section 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 section 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 prov....
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....sp; "Exemption for certain incomes of a venture capital company or venture capital fund from specified businesses or industries Under the existing provisions of clause (23FB) of section 10, any income of a venture capital company or venture capital fund set up to raise funds for investment in a venture capital undertaking is exempt from tax. The existing definition of a venture capital undertaking as provided in clause (c) of explanation 1 to clause (23FB) 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 and notified as such in the Official Gazette by the Board. It is proposed to amend the said clause so as to provide that such exemption will now be available only in respect of income of a venture capital company or venture capital fund from investment in a venture capital undertaking engaged in certain specified businesses or industries. For this purpose it is also proposed to amend the aforesaid definition of venture capital undertaking to mean such domestic company whose shares are not listed in a recognised stock ....
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....g and operating composite hotel cum convention centre with seating capacity of more than three thousand, or (h) Developing or operating and maintaining or developing operating and maintaining any infrastructure facility as defined in the explanation to clause (i) of sub-section (4) of section 80-IA, or (i) Dairy or poultry industry. 14.3. Applicability: This amendment will take effect from the 1st day of April, 2008, and will accordingly apply in relation to the assessment year 2008-09 and subsequent assessment years. 12. The Mumbai Tribunal 'F' Bench in the case of Marigold Mezzanine Investment Fund v. ITO in ITA Nos. 3912 and 4095/M/06 have held as follows: "We have carefully perused and considered the rival submissions. The circular No.3./2008 dated 12.3.08 relied upon by the ld. AR clearly speaks in para 14.2 that exemption will now be available only in respect of income of a venture capital company or venture total fund from investment in a venture capital undertaking and the new inserted expression would be applicable from the AY 2008-09. The contention of ld. AR that expression derived from does not appear in the relevant pro....