TaxTMI 
TaxTMI 
2017 (6) TMI 1331
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.... of IT Act. For the sake of convenience, the facts are extracted from the record of the A.Y 2009-10. 2.1 The assessee filed the return of income declaring total income of Rs. Nil. The assessee is a Venture capital Fund, Registered with SEBI and eligible for exemption u/s 10(23FB), carrying on investment activity managing the funds of TVS investment I Fund. The AO taken up the case for scrutiny and made the following additions: * Disallowances Rs. Rs. 5,92,96,950/- u/s.40A(2)(b) relating to the payment made to TVS Capital * Non-deduction of tax at source on provisional fee Rs. 6,77,269/- 2.1 The assessee's total income was loss of Rs. 17,26,32,448/- which was claimed as pass-through to the beneficiaries. The AO disallowed a sum of Rs. 5,99,34,183/- and assessed business loss at Rs. 11,26,98,263/-. 3.0 The assessee went on appeal before the CIT(A) and the Ld.CIT(A) allowed the assessee's appeal. However, the Ld.CIT(A) brought to tax the income in respect of income from investment in Venture Capital Undertaking (in short 'VCU') amounting to Rs. 2,69,38,526/- stating that the assessee is an entity eligible for exemption u/s.10(23FB) and in the case of Trust r....
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....the Trust Deed defines "Beneficial Interest" as under: "Beneficial interest" means the proportionate interest held by each of the Beneficiaries as evidenced by the number of Units held by the Beneficiaries form time to time on the basis of which Distribution Proceeds available will the Trust shall be distributed by the Trustee as per the provisions of the respective contribution agreement and the Private Placement Memorandum. Clause 1.1.35 defines "Unit" as follows: "Unit" means a unit of any class evidencing beneficial interest of the contributors/beneficiaries in the respective scheme of the Trust issued by the Trustee/Investment Manager to a Contributor/Beneficiary on the making of a Capital Contribution and includes a fraction of a unit evidencing beneficial interest in the Contribution Fund of a value less than the face value of the respective class units. The entitlement of share of beneficial interest of each of the contributor to the Fund is ascertainable and well detailed in the Trust Deed itself vide Clause 3.5 of the Trust Deed as follows: Clause 3.5 of the Trust Deed All the Contributors/ Beneficiaries of vario....
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....fiable with reference to the instrument or trust deed on the date of such instrument or trust deed and which should clearly lay down that the beneficiaries means the persons, each of whom have made or agreed to make contributions to the trust in accordance with the contribution agreement. The above clause is sufficient to identify the beneficiaries. On the aspect of ascertainment of share of the beneficiaries, the Bangalore ITAT has held that if the trust deed sets out expressly the manner in which the beneficiaries are to be ascertained and also share to which each of them would be entitled without ambiguity, then it cannot be said that the Trust deed does not name the beneficiaries or that their shares are indeterminate. The persons as well as the shares must be capable of being definitely pin pointed and ascertained on the date of the trust deed itself without leaving these to be decided upon at a future date by a person other than the author at his discretion in the manner not envisaged in the trust deed. Even if the Trust deed authorises addition of further contributors to the trust at different points of time, in addition to initial contributors, then the same would ....
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....scrutiny assessment has to be completed. Assessments in respect of beneficiaries have been completed prior to the completion of the assessment of the Appellant. Further, where the Department has exercised the option to tax the beneficiaries, the same income cannot be assessed again in the hands of the Trustee of the Appellant in its capacity as the representative assessee. The Kerala High Court in the case of CIT Vs Dr. David Joseph (214 ITR 0658) has held that once a beneficiary is assessed and his assessment is completed prior in point of time and his assessment is an element of finality, it is no more permissible for the department to assess the trust again. This is also in line with the CBDT Circular No.157, dated 26.12.1974. The decision of Karnataka High Court in the case of CIT Vs Smt. Indramma (25 Taxmann.com 259) also affirms the above findings. On an identical facts and issue, the ITAT, "B" Bench, Bangalore in ITA No.178/Bang/2012 dt.17.10.2014 in the case of India Advantage Fund VII, has laid down following principles on applicability of Section 164(1) of the Act. a) Identification of beneficiaries b) Ascertainment of sh....
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....ries. Para 3.5 of the Trust Deed clearly states that the contributors / beneficiaries are entitled to beneficial interest every year comprising of corpus and accretions thereto in proportion to their contribution. As per Para 3.5 of the Trust Deed, the beneficial interest on the income arising each year on the investments made will be intimated to the beneficiaries / contributors on completion of accounts to facilitate the beneficiaries / contributors to include and offer the said beneficial interest in the return of income every year filed by each beneficiary / contributor. The beneficiaries of the Appellant have included the entire income earned by the Appellant in their return of income and offered to tax. The Appellant filed a "NIL" return of income since the income was offered to tax by the beneficiaries and also filed a list of beneficiaries, their PAN, Contributions made, their beneficial interest and income & expenses apportioned to each beneficiary along with the return. The beneficiaries have confirmed that income from the Appellant, a SEBI registered Venture Capital Fund, has been offered to tax in their respective return of income by ....
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.... The terms of the trust deed of the appellant are identical in substance and form, the decision of the ITAT, Bangalore in the case of India Advantage Fund VII and ICICI Emerging Sector Fund squarely applies to the Appellant. The Hon'ble HC vide its order dated 1.2.2017 in ITA No.191/2015 and ITA No.446 to 450/2015 while confirming the order of the ITAT, Bangalore in the case of India Advantage Fund VII and ICICI Emerging Sector Fund has reaffirmed the following principles: f. The contention that on the date of execution of the Trust Deed, the shares should specifically come in existence with the quantification and it need not depend upon future share of benefits or upon any future contingency is wholly misconceived. g. By no interpretative process, the explanation to Section 164 of the Act, can be read for determinability of the share of the beneficiary with the quantum on the date when the trust deed is executed. h. The real test is the determinability of the shares of the beneficiary and is not dependent upon the date on which the trust deed was executed. i. The real test is whether shares are determinable even when or after th....
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....is directly covered by the above decisions wherein it has been held that any income received by such Trusts are taxable in the hands of the beneficiaries only and not in the hands of the trust. Without prejudice, the Apex court and other High Courts have held that even in the case of discretionary trust, if the beneficial interests have been offered for tax by the Beneficiaries or the Beneficiaries' share have been credited to the accounts of the beneficiaries (as has been done in this case), then the Trust is not taxable. a) KamaliniKhatau -209 ITR (101) (SC) b) Moti trust - 236 ITR 37 (SC) c) Indramma - 25 Taxmann.com 259 (Kar) d) David Joseph - 214 ITR 658 (Ker) 5.0 On the other hand, the Ld. DR argued that the assessee is a registered Venture Capital Fund and is a pass through Trust, such pass through status can be extended only to the extent of income earned on VCU investments since the assessee being a SEBI registered VCU is squarely covered by the provisions of Sec.10(23FB) r/w Sec.115(U) of the act. According to the Ld.AR the assessee is not a 'determinate Trust' and it cannot be categorized so, since the conditions laid down in ....
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....C) or VCF to the assessee is to be furnished u/s.115(U) of IT Act and r/w Rule 12C of IT Rules the information required to be reported with regard to other income from non VCU investments and the same cannot be passed on to the beneficiaries. 5.2 The Ld. DR also relied on the decision of ITAT 'D' Bench in the case of DHFL Venture Capital Fund dated 08.01.2016, the Hon'ble Supreme Court decision in the case of ITO v. Ch. Atchaiah 218 ITR 239 and the Hon'ble Special Bench of the ITAT, Delhi in the case of Pradeep Agencies joint venture reported in (2007) 111 TTJ Delhi 346. 5.3 The Ld. DR made further submissions that the assessee's investment manager M/s.TVS Capital Ltd., a company incorporated under the Indian Companies Act had published the FAQs and note on taxation of income earned by the beneficiaries from the TSGF. In the said document in page no.11 to 15 of paper book, it had categorized the distinction and non-VCU income. It had also narrated the principle by which the respective head of income, be it dividend or interest or capital gains that has to be offered to tax in the hands of the beneficiaries. The investment manger had stated that the interest income has to be i....
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....inate trust and the income of the assessee is taxable in the hands of the beneficiaries under 161(1) of IT Act. Whether the income is from investment in Venture Capital Undertaking or not makes no difference in the case of determinate trust. Once the trust is determinate and the shares of the beneficiaries are known the entire income of the trust has to be taxed in the hands of the beneficiaries but not in the hands of the assessee. According to him it is immaterial regarding the changes of share holdings of the beneficiaries and their shares bound change with the pace of increase in number of beneficiaries. The Ld.Sr.Counsel has relied on the host of judicial pronouncements specifically invited our attention to the decision of DCIT v. India Advantage Fund, ITAT Bangalore, DCIT v. Emerging Sectors Funds ITAT Bangalore, CIT v. Dr.David Joseph 214 ITR 658 Kerala, CIT v. Smt. Indiramma 25 taxmann.com 259 Karnataka and CIT v. P. Sekhar Trust 321 ITR 304 (Mad). 6.1 Shri Gopala Srinivasan S/o. Late T.A.Srinivasan has created a a contributory trust in the name of TVS Shriram Growth Funds under the provisions of Indian Trust Act, 1882 and registered as Venture Capital Fund (VCF) under t....
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....the respective class of units. The management and terms of the Trust are spell out in Clause No.3.5 of the Trust Deed (Page No.11) as under: 3.5. Management and terms of the Trust - The Trust will be organized, administered and managed by the Trustee in accordance with this deed, the respective Investment Management Agreement, Contribution Agreements, the PPM and other ancillary documents/agreements as may be considered by the Trustee. All the Contributors / Beneficiaries of various schemes under various PPMs will become the beneficial owner of the Trust Fund and the Contributors Beneficiaries will be entitled to the Beneficial Interest each and every year comprising of corpus and accretions thereto in proportion to the their Contribution under the respective schemes and PPMs. The Beneficial Interest of each such Contributor / Beneficiary in the Contribution Fund shall extend to and be limited to the aggregate value of the Capital Contribution made by that Contributor in the Contribution Fund under respective Private Placement Memorandums. All the contributors are the beneficiaries under this instrument and on fulfillment of all the terms and conditions stipulated....
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....in the Investment Management Agreement and the PPM, In addition, the investment Manager would also be entitled to a carried interest at such rate and on such terms as set out in the PPM. 6.4 The Ld.AR argued that the Trust Deed has identified the beneficiaries by capital contribution agreements as per the Private Placement Memorandum. The beneficiaries and the description of the persons who are to be benefitted from the Trust is defined in the Trust Deed as contributors or beneficiaries. By clause No.1.1.4 of the Trust Deed explains the beneficial interest which means the proportionate interest held by each of the beneficiaries (as defined hereinafter) as evidenced by the number of units held by the beneficiaries from time to time on the basis of which Distribution proceeds available with the trust shall be distributed by the trustee as per the provisions of the respective contribution agreement and the PPM. Based on the above clauses of the Trust Deed, the Ld.AR argued that beneficiaries are identifiable, beneficial interest is ascertainable w.r.t. the Trust Deed. Further, the distribution of income is not at the discretion of the assessee and is required as per the clause of t....
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....The contributors to the fund are its beneficiaries. It is a Private Trust to which the provisions of Indian Trust Act, 1882 would apply. 43. Sec.3 of the Indian Trust Act, 1882 defines "Trust" as an obligation annexed to the ownership of property, and arising out a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner; the person who reposes or declares the confidence is called the "author of the trust'; the person who accepts the confidence is called the "trustee"; the person for whose benefit the confidence is accepted is called the "beneficiary"; the subject-matter of the trust is called "trust property" or "trust-money"; the "beneficial interest" or "interest" of the beneficiary is his right against the trustee as owner of the trust-property; and the instrument, if any, by which the trust is declared is called the "instrument of trust". 44. We were initially doubtful, whether a person who contributes to the trust in accordance with the terms of a contribution agreement could be said to be "beneficiary" of the trust. It is no doubt true that the beneficiaries are identifiabl....
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....ons or class of persons to be added as beneficiaries; (ii) specifying the date (not being earlier than the date of the deed but during the trust period) from which such person or persons to be thereby added as beneficiaries; and (c) It is hereby clarified that such beneficiaries will be entitled to only such share that is in proportion to the contribution made by them and in accordance with the Contribution Agreement." 46. On the above facts, which are on par with the facts of the present case before us, the AAR held as follows:- "At the time of hearing, a doubt was expressed by the Authority as to how far a provision conferring an absolute discretion on the trustees to add names of beneficiaries to the trust would be justified in law. Though the authorised representative of the applicant (AR) contended that this clause was perfectly in order (citing O.P. Agarwalla on Trust, p. 220-2), he also expressed his willingness to modify cl. 7(a) as follows in order to obviate any kind of objection :- "7.(a) The trustee shall during the trust period, have the power at their discretion to admit as beneficiary any institutional investor which agree....
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....te. The clause which enabled the trustees to admit any one as a beneficiary, the Authority felt, might introduce a degree of uncertainty regarding the element of beneficiaries under the trust. The parties have agreed to modify the clause as indicated above. The result is that now the trustee's choice of beneficiaries is restricted (a) by the overall limit of the fund; (b) only to institutional investors; and (c) to persons who agree to subscribe to the CA. The criteria for persons to become beneficiaries and the shares of income they are entitled to are clearly defined in the deed. The Authority is of opinion, that with the introduction of the modifications referred to above and in the light of the statement on law contained in the passages from Agarwalla's Trust Act cited by learned counsel, there can be no objection to the validity of the modified trust deed. [Parenthetically, however, it may be observed that, in the definition in cl. (a) proposed to be inserted, the words "being a natural person" appears to be a surplusage and may be omitted without detracting from the meaning of the clause. But this has no impact on the validity of the trust deed." (emphasis supplied....
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....planation. Sec. 164(1) was in the Act when it was enacted in 1962 but its wording underwent a change, introducing a concept of taxation at marginal rate in 1970 by the Finance Act of 1970 w.e.f. 1st April, 1970. The object and scope of this amendment were elaborated in a circular of the CBDT (Circular No. 45 dt. 2nd Sept., 1970) as under :- "Private discretionary trusts. - Under the provisions of s. 164 of the IT Act before the amendment made by the Finance Act, 1970, income of a trust in which the shares of the beneficiaries are indeterminate or unknown, is chargeable to tax as a single unit treating it as the total income of an AOP. This provision affords scope for reduction of tax liability by transferring property to trustees and vesting discretion in them to accumulate the income or apply it for the benefit of any one or more of the beneficiaries, at their choice. By creating a multiplicity of such trusts, each one of which derives a comparatively low income, the incidence of tax on the income from property transferred to the several trusts is maintained at a low level. In such arrangements, it is often found that one or more of the beneficiaries of the trust are pers....
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....een that the object of the amendments to the provision was only that the distribution of the income should not be entirely at the discretion of the trustees and that the trust deed should regulate the shares. 53. Having noticed the tax implications of discretionary trusts, we may now revert to the various issues raised by the Revenue in the grounds of appeal and the facts of the present case. The issue raised in grounds No.1 is general, calling for no specific adjudication. The issue raised by the Revenue in Ground No.2 is with regard to the applicability of the provisions of Sec.60, 61 and 63 of the Act to the facts and circumstances of the present case. In this regard it needs to be clarified that the Assessee in its reply dated 15.12.2010 to the AO in the course of assessment proceedings pointed out the above provisions and submitted that it is only the beneficiaries who have to be assessed to tax in respect of income arising from a revocable transfer. The AO in the order of assessment did not consider the above argument nor has he given any reasons why the same are rejected. The submission made by the Assessee before CIT(A) on this aspect have been accepted by the CIT(....
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....Fund are held to be in the nature of business income then such business income would be taxable in the hands of the beneficiaries at the relevant applicable rates. (4) Gain on redemption premium of debentures/bonds will also suffer tax either as long term or short term capital gain depending on the period of holding. 55. Under clause-2 of the contribution Agreement, the contributor/beneficiary/investor agrees to contribute a specified sum to the trust/fund. Clause-2.6 of the contribution agreement specifies that the contributor/investor/beneficiary shall not have any right to demand the return of his/her/its fund contributor, other than upon dissolution of the fund. Clause-2.6.2 provides that the trustee may refund the fund contributor to the contributor, without interest, within a period of 3 months from the date hereof, in the event the minimum fund commitment is not received. Clause2.9 of the contributor agreement also lays down that the redemption of units by the beneficiary shall be at the sole discretion of the Trustees in consultation with the investment manager. 56. In the light of the aforesaid clauses in the contribution agreement, can it be said that tr....
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....rtue of powers conferred under the trust deed, would be sufficient to conclude that the transferor/beneficiary had deemed powers of revocation. In this regard the reliance placed by the learned counsel for the Assessee on the ration laid down in the decision of the Hon'ble Supreme Court in the case of Jyothendrasinhji (supra)is squarely applicable to the present case. In the aforesaid decision the Hon'ble Supreme Court held that Sec. 63(1) of the Act does not say that the deed of transfer must confer or vest an unconditional or an exclusive power of revocation in the transferor. It was further held that the fact that concurrence of the trustee had to be obtained by the transferor/settler for revocation will not make the trust an irrevocable transfer. In such circumstances it must be held that the deed contains a provision giving the transferor a right to re-assume power directly or indirectly over the whole or any part of income or assets within the meaning of s. 63(a)(ii) of the Act. 59. For the reasons given above we hold that Sec.61 read with Sec.63 of the Act which mandates that income arising to any person by virtue of a revocable transfer of assets shall be c....
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....f trust or wakf deed, as the case may be, and are ascertainable as such on the date of such order, instrument or deed." 61. The general rule as laid down in Sec. 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 assessee "in like manner and to the same extent as it would be leviable upon the recoverable from the person represented by him". To the above rule, however, three exceptions have been incorporated in the Act :- (a) Under s. 161(1A), this rule of apportionment and determination of proportionate tax attributable to the beneficiary will not apply to any income earned by the trustee as profits and gains of a business. The whole of such income shall be taxed at the "maximum marginal rate". A similar proviso occurs also in s. 164(1) restricting benefits where business income is involved. (b) Under s. 164(1), if the beneficiaries are not identifiable or the individual shares of the persons on whose behalf and for whose benefit the income is rece....
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.... the Trust Deed clearly specifies the manner in which the income of the Assessee is to be distributed. The said clause details formula with respect to the share of each beneficiary. As rightly contended on behalf of the Assessee it is not the requirement of law that trust deed should actually prescribe the percentage share of the beneficiary in order for the trust to be determinate. It is enough if the shares are capable of being determined based on the provisions of the trust deed. In the case of the Assessee the trustee have no discretion to decide the share of each beneficiary and are bound by the provisions of the trust deed and is duty bound to follow the distribution mechanism specified in the trust deed. The further aspect that may require consideration in the present case is with regard to the clause in the Trust Deed which authorises addition of further contributors to the trust at different points of time in addition to initial contributors. From this clause can it be said that share income of the beneficiaries cannot be determined or known from the trust deed. On the above aspect, we find the AAR in the case of Companies Incorporated in Maurities In re (supra) has consid....
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....es of decisions, the meaning of this expression was precisely defined and tests were laid down in order to find out when a conglomerate of persons could be held to be an AOP for the purposes of section 3 of the 1922 Act. While interpreting this expression occurring in section 3 of the Indian IT Act, 1922, the Supreme Court in CIT v. Indira Balkrishna (supra) held "an AOP must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains". The Supreme Court, however, administered the following caution : ''There is no formula of universal application as to what facts, how many of them and of what nature, are necessary to come to a conclusion that there is an AOP within the meaning of section 3; it must depend on the particular facts and circumstances of each case as to whether the conclusion can be drawn or not''. To the above judicial exposition of what constitutes AOP, there has been a statutory rider added. The Finance Act, 2002 has inserted w.e.f. 1st April, 2003 an Explanation to clarify that ob....
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....ered into between the Assessee and each beneficiary. There is no inter se arrangement between one contributory/ beneficiary and the other contributory/beneficiary as each of them enter into separate contribution arrangement with the Assessee. Therefore it cannot be said that two or more beneficiaries joined in a common purpose or common action and therefore the tests for considering the Assessee as AOP was satisfied. The beneficiaries have not set up the Trust. Therefore it cannot be said that the beneficiaries have come together with the object of carrying on investment in mezzanine funds which is the object of the trust. The beneficiaries are mere recipients of the income earned by the trust. They cannot therefore be regarded as an AOP. Ground No.8 raised by the Revenue is therefore held to be without any merit. 69. Another reason assigned by the AO for treating the status of the Assessee as AOP was that in the return of income filed by the Assessee the status was shown in return of income. In this regard it is not in dispute before us that the form of return of income as it existed for the relevant assessment year did not contain a clause for filing return of i....
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....ustify the subsequent action taken by the Department. These are in fact the normal consequences that flow from the principle of finality. This principle especially emerges from three circulars and has established into a settled practice, any time a deviation therefrom cannot be permitted, even on the ground of a mistake with regard to the merits of the situation that received finality. Similar view has been taken by the Hon'ble M.P.High Court in the case of Rai Sahe Seth Ghisalal Modi Family Trust (supra)and Hon'ble Bombay High Court in the case of Trustees Of Chaturbhuj Raghavji Trust (supra). 72. The Hon'ble Bombay High Court in the case of Trustees of Chaturbhuj Raghavji Trust (supra)held that under sub-s. (2) of s. 41, it is permissible for the IT authorities to make direct assessment on the person on whose behalf income, profits and gains from a trust are receivable. Sec. 41 having provided for two alternative methods, namely, either to tax the income in the hands of the trustees or directly in the hands of the person on whose behalf the income was receivable under the trust, and one of them having been availed of by the IT Department in directly assessing....
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....h (supra)on which the AO placed reliance in making assessment on the Assessee in our view is not applicable to the facts of the present case. In the said decision the status of the Assessee as that of an AOP was not disputed but it was argued that the ITO had option to assess either the AOP or the individual member of the AOP. The Hon'ble Supreme Court held that unlike under s. 3 of the 1922 Act, the ITO did not have an option under s. 4 of the IT Act, 1961, to assess either the AOP or the individual members thereof. If the ITO has assessed a wrong person, say individual instead of AOP, he is not precluded, in contradistinction to the 1922 Act, to seek to assess the right person under the 1961 Act. The Hon'ble Court made it clear that wherever such on option is given under the 1961 Act, it has been specifically provided, as in s.183 and that under the 1961 Act, tax has to be levied on the right person, irrespective of benefit to Revenue. In the present case, however, we are concerned with a case of assessment of representative assessee or the person in respect of whom some other person is considered as representative assessee. Sec.161(1) by implication permits assessment of....
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....o be determinable, the income is to be taxed of that respective sharer or the beneficiaries in the hands of the beneficiary and not in the hands of the Trustees which has already been shown in the present case. 13. Under the circumstances, in any case, it cannot be said that the Tribunal has committed error. Accordingly, the question is answered in affirmative against the Revenue and in favour of the assessee. 6.7 In the instant case, the assessee has created a trust which was registered and the beneficiaries have been identified by the contribution agreement(PPM) and their shares are also ascertainable with respect to contributions and the units. The Hon'ble High court considered the issue regarding identification of beneficiaries at the time of formation of the Trust and expressed view that even after execution of the trust deed if the beneficiaries are identifiable and their shares are ascertainable it is sufficient compliance to hold the trust as determinate Trust. In the assessee's case the beneficiaries are identifiable with PPM and their shares are ascertainable as discussed earlier in this order. The facts of the case are similar to that of "India advantage Fund....
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....pter XII-D or XII-E or XVII-B shall not apply to the income paid by the VCC or VCF. This mean that no tax shall be payable u/s 115-0 or section 115R and no tax deduction at source shall be made under the provisions contained in Chapter XVII-B from the income paid by the VCC or VCF to an investor. As per sub.-sec (2) of section 115U, it is mandatory on the part of the VCC or VCF to furnish a statement in the prescribed form and verify in the prescribed manner giving the details of nature of income paid during the previous year. Form 64 is provided for making the statement of income distributed by VCC or VCF to be furnished u/s 115U of the IT Act. It makes clear that VCC or VCF has to furnish the details of the nature of income received by the investor from VCC or VCF. Specific details requiring the income/amount paid under long term capital gains, short term capital gains, dividend or other income such as interest etc. Thus, section 115U mandates that the nature of income which is received by the VCC or VCF from the Venture Capital undertaking and further distributed to the investor shall be taxable in the hands of the investor by treating the same nature of income like long term ca....
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....r whether the beneficiaries claimed the entire expenditure in this case Rs. 1,60,28,666/- (loss) from the taxable income instead of admitting the interest income as such in the hands of beneficiaries and claiming set off of loss in respective source of income. The assessee in the P&L account did not apportion the expenditure relating to other income and the income relating to venture capital income. It is necessary to bifurcate the expenditure incurred for various sources of income to include in the hands of the beneficiaries to club under the various heads correctly since expenditure relating to exempt income is not allowable. Therefore, the entire issue requires further verification from the assessing officer to compute the correct income under the head Interest income which required to be assessed as income from other sources and the dividend income and Long term capital gains. Therefore we set aside the entire matter back to the file of the assessing officer to examine the issue in the light of the above discussion and decide the issue afresh on merits. The assessee is also directed to collect information from the beneficiaries regarding the inclusion of income relating to the ....
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...., however taxed the interest income in the hands of the assessee trust. Subsequently, the assessee filed petition u/s.154 on 30.03.2016. The petition u/s.154 is disposed off by Ld.CIT(A) by a Modification Order dated 05.04.2016 and in the rectification order Ld.CIT(A) held that the Trust is indeterminate Trust and dismissed the assessee's petition on application of Sec.161(1) to allow pass through of entire income to the beneficiaries. The assessee filed appeal before this Tribunal challenging the order of the Ld.CIT(A). The Ld.Counsel appearing for the assessee argued that in the original appeal, the Ld.CIT(A) given a finding that the assessee's Trust is a determinate trust and the beneficiaries are identifiable and the provisions of Sec.161(1) is applicable in the assessee's case and accordingly, the income of the assessee required to be taxed in the hands of the beneficiaries but not in the hands of the assessee. The assessee is liable to be taxed only in the representative capacity as provided u/s.161(1). The above finding given by the Ld.CIT(A) in the order passed u/s.250(6) of the IT Act is reversed in the order u/s.154 which is not permissible. The issue with regard to the d....
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....ve amount to TVS Capital Fund Investment, which is a sister concern of the assessee. The AO observed that the amount paid by the assessee to the investment manager is nearly 64% of the funds deployed as investment. Therefore, the AO disallowed the 50% of expenditure u/s.40A(2)(b) of Income Tax Act. The Ld.CIT(A) deleted the addition stating that incomes of the assessee are governed by provisions of Chapter-III of the IT Act as under: "7. With regard to the disallowances made u/s.37 r.w.s. 40A(2)(b), it is seen that the Investment Manager is not a related enterprise as defined u/s.40A(2)(b). Further, in respect of the expenditure disallowed u/s.37 and 40(a)(ia), while the income of the assessee is governed by provisions of Chapter III of the Income tax Act, 1961, being 'Incomes which do not form part of total income' as it has been affirmed earlier that the assessee is eligible for exemption u/s. 10(23FB), disallowances contemplated under Chapter IV of the Income tax Act, 1961 cannot be undertaken. Therefore, the disallowance of expenditure to the tune of Rs,5,99,34,183/- is deleted and thus, the appellant succeeds on grounds of appeal (d) and (e), as well and the same is a....