TaxTMI 
TaxTMI 
2022 (7) TMI 862
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....m expenses of Rs. 8,89,844/- and telephone and internet expenses of Rs. 2,38,919/-. On appeal, the Ld. CIT(A) allowed part relief. The assessee is in further appeal against sustaining the addition of Rs. 9,95,086/- on account of excess share premium received by the assessee; disallowance of Rs. 8,89,844/- being company international system expense and disallowance of Rs. 1,19,460/- out of telephone and internet expenses and all the four grounds of appeal relate thereto. 3. Ground No. 1 is of general nature. 4. Ground No. 2 relates to addition of Rs. 9,95,086/- on account of excess share premium received by the assessee. During assessment proceedings the Ld. AO raised a query in this regard to which the assessee vide letter dated 24.08.2017 replied that: "1. 3180 shares have been issued to Nirvana Digital Investment Holding Co. Ltd. which is foreign company and the provisions of section 56(2)(viib) are applicable to the shares issued to resident persons only. Since Nirvana Digital Investment Holding Co. Ltd. is a foreign company, therefore, the provisions of see. 56(2)(viib) are not applicable to the shares allotted to this company. 2. 3180 shares were issued to Nirvana Digita....
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....st. 2) Letter filed by IL&FS Trust Company Ltd. (Trustee to Patni New Age Trust) with SEBI. 3) Copy of Income Tax return filed by Nirvana Digital India Fund for AY 2015-16 showing that it is registered with No. INVCF 11-12/0216 and claimed exemption under section 10(23FB) of the Act. 4) The financial statement of Nirvana Digital India Fund for the year ended March 2015. It was contended on the basis of above evidence that Nirvana Digital Fund qualified as Venture Capital Fund, and as per first proviso to section 56(2)(viib) exclusion is provided to Venture Capital Funds, the impugned addition made by the Ld. AO is not correct. 4.2 The contentions of the assessee were not acceptable to the Ld. CIT(A). According to him, the share floating company has to be a Venture Capital Undertaking (VCU) and the purchaser company has to be a VCF. The assessee is not a VCU. It has only received consideration from a VCF. Since the assessee is not a VCU it is not covered by first proviso to section 56(2)(viib) of the Act. Relying on Kerala High Court decision in Sunrise Academy of Medical Specialties (I) (P) Ltd., the Ld. CIT(A) confirmed the impugned addition. 4.3 Aggrieved, the assessee i....
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....e Registration Act, 1908 which 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. 4.6.3 Clause (c) of Explanation to section 10(23FB) defines "Venture Capital Undertaking" to mean a Venture Capital Undertaking as defined in clause (n) of Regulation 2 of the Venture Capital Funds Regulations. 4.6.4 Clause (n) of Regulation 2 of the Venture Capital Funds Regulations defines "Venture Capital Undertaking" to mean a domestic company - (i) whose shares are not listed on a recognized stock exchange in India; (ii) which is engaged in the business for providing services, production or manufacture of article or things or does not include such activities or sectors which are specified in the negative list by the Board with the approval of the Central Government by notification in the Official Gazette in this behalf. 4.6.5 The negative list as per the Third Schedule of SEBI (Venture Capital Funds) Regulations, 1996 comprises of non-banking financial services with certain exclusions stated therein, gold financing with certain exclusions stated therein, activities not per....
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.... Funds) Regulations, 1996 in view of the nature of business carried on by it. We are of the considered view that the assessee fulfils the requisite conditions of being a Venture Capital Undertaking. Therefore, the case of the assessee falls within the ambit of the exclusionary provision contained in first proviso to clause (viib) of section 56(2) of the Act. 5.2 The Ld. CIT(A) referred to the decision of Kerala High Court in Sunrise Academy of Medical Specialities (India) (P) Ltd. This decision is rendered in the context of first proviso to section 68 inserted by the Finance Act, 2012 w.e.f. 1.04.2013. The Hon'ble Court held that section 56(2)(viib) is not controlled by section 68. The Ld. CIT(A) lost sight of the second proviso to section 68 which carves out an exception to the first proviso which says that first proviso shall not apply if the person, in whose name the sum referred to therein is recorded, is a Venture Capital Fund or a Venture Capital Company as referred to in clause (23FB) of section 10. Hence, reliance by the Ld. CIT(A) on the decision (supra) is misplaced. Accordingly, we hold that the first proviso to section 56(2)(viib) is applicable to the case of the asses....
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....3 Aggrieved, the assessee is before the Tribunal. 6.4 The Ld. AR reiterated the same arguments which were advanced before the Ld. AO/CIT(A). The Ld. DR supported the orders of the Revenue authorities. 6.5 We have given our careful thought to the rival submissions and perused the material on record. It is well settled that if the expenditure is not incurred for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business but for running of the business of the assessee more efficiently, it partakes the character of revenue expenditure. The case of the assessee has all along been that it made payment for getting access to pay roll services, subscription services etc. in software wherein the assessee does not get any right to exploit the software for commercial purposes as the ownership remains with the vendor itself. The invoices available on record support the contention of the assessee that payment was made for subscription services and use of software and not for any outright purchase. 6.6 The reliance by the Ld. CIT(A) on the decision of Maruti Udyog (supra) is misplaced as in that case the software was acquired by the assessee which was h....