TaxTMI 
TaxTMI 
2020 (10) TMI 189
X X X X Extracts X X X X
X X X X Extracts X X X X
....lished under the Indian Trust Act and registered with the Security and Exchange Board of India (SEBI) as a venture capital Trust, filed its return of income for the assessment year under consideration declaring total income at Rs. 8,94,65,291/-. Later on the assessee filed revised return declaring its total income at Rs. 14,29,12592/-. Since this case was identified for scrutiny, AO issued notice u/s 143 (2) and 142 (1) of the Act. In response thereof, the authorized representative (AR) appeared before the AO and filed the details called for and discussed the case. During the course of assessment, it was noticed that the assessee had claimed exemption u/s 10(23FB) of the Act in respect of income earned out of investments made in venture capital undertakings. The AO after hearing the authorized representative accepted the claim of the assessee. Further, the assessee had shown income from venture capital undertaking amounting to Rs. 144,06,86,967/- and claimed TDS of Rs. 15,05,35,251/-. The AO asked the AR to explain as to why the credit for TDS claimed should not be disallowed in view of the provisions of section 199 of the Act, read with Rule 37BA of the Income Tax Rules. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is assessable. Whereas, assesse has failed to follow the guidelines for passing on the tax credit to actual person who has earned such income. 3. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in interpreting section 199 r.w.r. 37BA(2), in its letter and spirit. The purpose of this rule is to ensure that the tax credit for tax deducted is available to the person in whose hands the income is assessable. This rule also ensures that the other person reports this income in their respective returns of income. 4. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in interpreting Rule 37BA(1) of the Income Tax Rules. Ld. CIT (A) has failed to acknowledge that deductor has deducted TDS in the hands of assesse as deductor was never provided the information on whose hands the income was assessable by the assesse. Therefore, the same cannot be allowed to the assesse. 5. 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 scru....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... perused the material on record in the light of the rival contentions. The Ld. CIT (A) has decided the said issue in favour of the assessee holding as under:- " 5.18 After consideration of totality of facts and principle laid down in the judicial precedents discussed above and arguments made by the appellant it is clear that the appellant has neither provided the declaration to the deductor nor the deductor has reported the details of tax deducted at source in the name of the other person. The appellant filed Form 64 with the tax authorities and also provided the Form 64 to each of its contributors. It is the responsibility of each of the contributors to include the income in their respective tax returns as reported in Form 64 and pay appropriate tax on the same. The appellant had complied with the obligation casted on it. The appellant is not required to obtained confirmation from each of the contributors that they have included the income in their respective tax returns and also have paid appropriate tax. All details of the contributors including PAN were available with the AO and he could have independently verified with them under the powers available to him. As per th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he deductors was on behalf of the assessee. Since, the information furnished by the deductors to Income Tax authorities refers to the assessee only and not to the investors, the AO was required to give credit to the assessee. We further notice that the Ld. CIT(A) has followed the ratio laid down by the Hon'ble Telangana and Andhra Pradesh High Court in the case of IVRCL-KBL (JV) V. ACIT in Writ Petition Nos., 31680, 31681, 31740, 31741, 31748, 31763, 42408, 42489, 42657, 42666, 42667, 42678, 43038, 43069 & 43708 of 2015 vide its order dated 29th February, 2016. In the said case, the Hon'ble court has held that the assessee is entitled to credit for tax deducted at source in the light of the facts that the assessee has not filed any declaration with the deductor and the deductor has not reported in the name of such other persons. Where there is no claim made by such other person the claim for credit cannot be rejected. The Ld. CIT(A) has further considered the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Relcon ITA No 26/2015. In the said case, the Hon'ble Court has held that the assessee is entitled for TDS credit reflected in its Form 26AS in respect of incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of accounts. The inference of ld. CIT (A) that merely filing quarterly reports with SEBI and intimating it about the schemes will make VCF eligible for exemption is not acceptable. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in ignoring Explanatory notes for the amendment made to section 10(23FB) through finance Act 2013 which implies that pass through status which certain venture capital funds are availing till the date as of 1st April 2013 continuously enjoy that status in subsequent assessment years too and further amendment is made for the new funds which are registered under the SEBI (Alternative Interment Funds) regulations, 2012 w.e.f. 21st May 2012 to get pass through status U/s 115U and exemption u/s 10 (23FB). However, the existing venture capital funds which are not enjoying the pass through status U/s 115U and exemption U/s 10(23FB) which are registered before 21st may 2012 will continue to be governed under the earlier provisions having sectoral restrictions of venture capital undertakings which are eligible for exemption U/s 10(23FB) as existing till A.Y. 2012-13. 3. On the facts and in the circumstances of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) provides the procedure for filling declaration by the deductee with the deductor for giving credit of tax deducted to other person in whose hands the income is assessable. Whereas, assessee has failed to follow the guidelines for passing on the tax credit to actual person who has earned such income. 9. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in interpreting section 199 r.w.r. 37BA(2), in its letter and spirit. The purpose of this rule is to ensure that the tax credit for tax deducted is available to the person in whose hands the income is assessable. This rule also ensures that the other person reports this income in their respective returns of income. 10. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in interpreting Rule 37BA(1) of the Income Tax Rules. Ld. CIT (A) has failed to acknowledge that deductor has deducted TDS in the hands of assessee as deductor was never provided the information on whose hands the income was assessable by the assessee. Therefore, the same cannot be allowed to the assessee. 11. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... CIT u/s 263 of the Act before the Tribunal. The Tribunal after hearing the assessee, set aside the impugned order passed by the Ld. Pr. CIT and restored the order passed by the Assessing Officer. The Ld. counsel further submitted that since the ITAT has decided the identical issue in favour of the assessee in assessee's appeal ITA No. 2509/Mum/2018, A.Y. 2013-14 filed against the order u/s 263 of the Act, there is no merit in the appeal of the revenue. 5. On the other hand, the Ld. Departmental Representative (DR) fairly admitted that the Tribunal has decided the identical issue in favour of the assessee in assessee's appeal against the order passed u/s 263 of the Act pertaining to the assessment year 2013-14, however, supported the assessment order passed by the AO. 6. We have heard the rival submissions of the parties and perused the material on record including the order passed by the "I" Bench of the Tribunal in assessee's appeal ITA No. 2509/Mum/2018 for the AY 2013-14. As pointed out by the Ld. counsel for the assessee, the coordinate Bench has set aside the impugned order passed by the Pr. CIT holding that since the assessee is entitled for claim of exemption u/s 10(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s per which Venture Capital Undertaking would mean a Venture Capital undertaking referred to in the SEBI (Venture Capital Funds) Regulations, 1996 made under the Security Exchange Board of India Act, 1992. Thus, up to assessment year 2007-08, all income of a Venture Capital Fund was exempt from Taxation. At the same time, it was taxable at the hands of unitholder who has made investment in Venture Capital Fund. Again, the definition of Venture Capital Undertaking was amended by Finance Act, 2007, w.e.f. 1st April 2008. As per which Venture Capital Undertaking means a domestic company whose shares are not listed in a recognised Stock Exchange in India and which is engaged in certain specified business activity as mentioned in the said definition clause. Thus, after the aforesaid amendment, the situation changed and the entire income of a Venture Capital Fund was no longer exempt from tax but only income from investment in Venture Capital Undertaking engaged in specified business sectors was exempt from taxation in the hand of VCF. Thus, the amendment to Section 10(23FB) of the Act brought by the Finance Act, 2007, made the exemption restrictive. By Finance Act, 201....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(DDT). Section 1O(23FB) further provides that income of a SEBI regulated VCF or VCC, derived from investment in a domestic company i.e. Venture Capital Undertaking (VCU), is exempt from taxation, provided the VCU is engaged in only nine specified businesses. The working of VCF, VCC or VCU are regulated by SEBI and RBI. In order to avoid multiplicity of conditions in different regulations for the same entities, the sectoral restriction on business of VCU is required to be removed from Income Tax Act and such VCU is to be allowed to be governed by conditions imposed by SEBI and RBI." 16. A further amendment was again made in section 10(23FB) of the Act by Finance Act, 2013, w.e.f. 1st April 2013. As per the aforesaid amendment Venture Capital Fund was defined as under:- "(A) operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908), which- (I) has been granted a certificate of registration, before the 21st day of May, 2012, as a Venture Capital Fund and is regulated under the Venture Capital Funds Regulations; or (II) has been granted a certificate of registration as Venture Capital Fund as a s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hich has been granted a certificate of registration as Venture Capital Fund under the SEBI (Alternative Investment Funds) Regulations, 2012, subject to fulfillment of certain conditions, is also treated as Venture Capital Fund. Further, as per the said provision, Venture Capital Undertaking would mean a Venture Capital Undertaking as defined in Clause (n) of Regulation-2 of the SEBI(Venture Capital Funds) Regulations, 1996 or a Venture Capital Undertaking as defined in Clause (aa) of Sub- regulation-1 of Regulation-2 of the SEBI(Alternative Investment Funds) Regulations, 2012. 19. Keeping in view the aforesaid provisions of section 10(23FB) of the Act if we examine the facts of the present appeal, it is seen that the assessee was created vide registered Trust Deed dated 18th July 2005, and was granted certificate of registration by the SEBI as a Venture Capital Fund by the SEBI on 26th September 2005. Thus, as could be seen, the assessee is a Venture Capital Fund as defined under Explanation (b)(A)(i) of section 10(23FB) of the Act. Therefore, the assessee is regulated under the SEBI (Venture Capital Funds) Regulations, 1996. As per Explanation (c)(i) of section 10(23FB) o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e filed for the impugned assessment year has claimed deduction under section 10(23FB) of the Act. It is also a fact that the return of income filed by the assessee was selected for scrutiny and in course of the assessment proceedings, in response to the notice dated 17th December 2013 issued under section 143(2) of the Act the assessee vide letter dated 26th December 2013, furnished copy of computation of income, return of income, audited financial statements and statement of income paid or credited to unitholders in Form no.64 which is required to be furnished under section 115U of the Act. The Assessing Officer after verifying the details furnished by the assessee and noticing that the assessee has claimed exemption under section 10(23FB) of the Act as a Venture Capital Fund issued a notice under section 142(1) of the Act on 5th March 2014, requiring the assessee to furnish various details including a note on nature of business activity. In response to the said notice, assessee vide letter dated 12th March 2014 furnished the required details along with supporting documents. Subsequently, the Assessing Officer issued a notice under section 142(1) of the Act on 18th September 2015 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Capital Undertakings. In the said reply, it was submitted by the assessee that the fund was created to float various schemes with focus to invest primarily in entities engaged in the real estate sector. The assessee referring to the negative list as per the Third Schedule of Securities and Exchange Board of India (Venture Capital Funds), Regulations 1996 submitted that real estate sector is no longer appearing in the negative list as it has been taken out from the negative list by SEBI (Venture Capital Funds)(Amendment) Regulations, 2004 w.e.f. 5th April 2004. Thus, it was submitted, the assessee is eligible to avail exemption under section 10(23FB) of the Act. 22. The Assessing Officer after considering the submissions of the assessee and applying his mind to the relevant statutory provisions as well as material brought on record, ultimately completed the assessment on 17th March 2016, allowing assessee's claim of exemption with the following observations:- "5. The reply of the assessee and facts of the case were examined. The assessee is a SEBI registered Venture Capital Fund (VCF). As per the provisions of the I.T. Act, 1961, as amended by the Finance Act, 2012....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 2005. Therefore, it is regulated by Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996. As per the definition of Venture Capital Undertaking under clause 2(n) of the said Regulation, which is applicable to the assessee as per section 10(23FB) Explanation (c) of the Act, only those companies which are engaged in business activities appearing in the negative list under Third Schedule of the said Regulation are not to be treated as Venture Capital Undertaking. A cursory glance of the negative list under the Third Schedule of Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 makes it clear that the Venture Capital Undertakings in which the assessee has made investment are not appearing there. Admittedly, all the Venture Capital Undertakings, wherein, the assessee made investments are doing business in real estate sector. Real estate sector has been removed from the negative list under the third Schedule of Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 w.e.f. 5th April 2004. That being the case, assessee is not ineligible from availing exemption under section 10(23FB) of the Act. 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oing through the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996, we were unable to locate any restriction / condition imposed therein prohibiting the assessee from investing in mutual fund. On the contrary, the learned Sr. Counsel has brought to our notice a clarification issued by SEBI, wherein, it has been specifically stated that there is no prohibition in investing surplus fund available with Venture Capital Fund in short term liquid mutual fund. In any case of the matter, the allegation of breach / violation of SEBI Regulation has originated from the Principal Commissioner, whereas, there is no such allegation of violation of SEBI Regulations by the competent authority i.e., SEBI. Undisputedly, SEBI has issued registration certificate to the assessee registering it as a Venture Capital Fund in the year 2005. Therefore, the competent authority which can look into any violation is the SEBI. Neither the registration certificate granted has been withdrawn by SEBI nor any action has been taken against the assessee for any violation as alleged by the learned Principal Commissioner. In fact, on going through the Securities and Exchange Board of India....
X X X X Extracts X X X X
X X X X Extracts X X X X
....able. 27. Further, the learned Principal Commissioner has held that, since, the assessee has invested in Venture Capital Undertakings which are in real estate business, it can be said that assessee is in the business of buying and selling of property, hence, is not eligible for exemption under section 10(23FB) of the Act. We are unable to accept the aforesaid reasoning of the leaned Principal Commissioner. Only because the assessee has invested in Venture Capital Undertakings which are in real estate sector, it cannot be said that the assessee is also engaged in real estate business of purchase and sale of immovable property. More so, when the assessee has been registered with SEBI as a Venture Capital Fund and it has invested its funds in the manner prescribed not only under section 10(23FB) of the Act but also under Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996. 28. Further, the definition of Venture Capital Undertaking by virtue of amendment to section 10(23FB) of the Act by Finance Act, 2012, has adopted the definition of Venture Capital Undertaking as per section 2(n) of Securities and Exchange Board of India (Venture Capita....