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2017 (4) TMI 1581 - AT - Income TaxAssessment of Assessee trust as private specific trust - Exemption u/s 10(23FB) - income of a venture capital company or venture capital fund - Taxation of income arising from a recoverable transfer of assets - assessee venture capital fund is governed by SEBI guidelines as per SEBI Regulations 1996 and the income earned by it is allocated among the beneficiaries in specified ratio - as per AO assessee has invested more than 25% of corpus in one venture capital fund - assessee claimed that the contributions made by investors in terms of trust deed and contribution agreements are regarded as revocable transfer under the provisions of Income Tax Act 1961. Therefore as per above sections it makes clear that the assessee trust is a revocable trust - HELD THAT - The contribution agreement is an important document and trust deed which clearly accruing to the trust has ultimately to be transferred to the beneficiary in ratio of their investments. Sections 61 to 63 clarify that when a transferor can unilaterally resume the power of over assets the income is to be taxed in its hands only as if the transfer never happened. The clause 15.1 of the trust deed clearly mandates the contribution made by contributor can be revoked any time during the term of scheme. CIT(A) is justified in his action. We also find similar capital venture found in Bangalore in the case of CIT vs. India Advantage Fund 2014 (10) TMI 614 - ITAT BANGALORE wherein has considered the applicability of section 164(1) of the Income Tax Act and held that section 164(1) applies shall be deemed as being not specifically receivable on behalf or for the benefit of any one person unless the person on whose behalf or for whose benefit such income or such part thereof is receivable during the previous year is expressly stated in the order of the Court or the instrument of trust or wakf deed as the case may be and is identifiable as such order instrument or deed. The individual shares of the persons on whose behalf or for whose benefit such income received shall be deemed to be indeterminate unless the individual shares of the persons on whose behalf or for whose benefit such income stated in the order of the court. Section 161(1) applies in the case of the trust received the income from representative assessee and the High Court has gone to the extent that real test is whether shares are determinable even when after the trust is formed or may be in future when the trust is in existence. Therefore in this case the beneficiaries agreement has been made and trust deed has been executed in the shares are determined. Therefore assessee cannot be taxed. We find that the similar financial company had been registered under Companies Act and the trust of the company was formed by trust deed and they were treated as private specific trust The similar trust has also been formed by a government company and they were treated as private specific trust. The similar trust was formed in Bangalore. In the decision M/S. INDIA ADVANTAGE FUND-VII 2014 (10) TMI 614 - ITAT BANGALORE wherein the similar trust was executed by the limited company and their beneficiaries were government and semi government companies and they were treated as the private specific trust by the Tribunal. Hon ble Karnataka High Court 2017 (2) TMI 722 - KARNATAKA HIGH COURT has also upheld the order of Tribunal in the case of CIT vs. Indian Advantage Fund. We are of the view that the Ld. CIT(A) is justified in holding that assessee trust is private specific trust and our interference is not required. The assessee has not claimed the deduction under section 10(23FB) of the Act. - Decided against revenue.
Issues Involved:
1. Deletion of disallowance of exemption of income. 2. Non-appreciation of facts from the earlier assessment year. 3. Exemption claims under different sections of the Income Tax Act. 4. Correctness of the assessee's contention regarding exemption claims. 5. Examination of the exemption claim under section 10(23FB). 6. Alteration of exemption claims without filing a revised return. 7. Taxability of income in the hands of the assessee. 8. Compliance with the definition of "revocable transfer." 9. Consideration of the assessee as a revocable trust. 10. Acceptance of different explanations during assessment proceedings. 11. Restoration of the AO's order. 12. Leave to amend or alter grounds. Detailed Analysis: 1. Deletion of Disallowance of Exemption of Income: The CIT(A) deleted the disallowance of exemption amounting to ?32,83,77,906/- made by the AO, who overlooked relevant materials and evidence. The AO had disallowed the exemption under section 10(23FB), claiming the assessee violated SEBI guidelines by investing more than 25% of the corpus in one venture capital undertaking. The CIT(A) found the assessee's contention correct, stating the actual corpus was ?101.03 crores, making the 25% cap ?25.26 crores, and the investment did not violate this limit. 2. Non-Appreciation of Facts from the Earlier Assessment Year: The AO argued that for the earlier assessment year 2007-08, the CIT(A) rejected a similar exemption claim by the assessee. However, the CIT(A) in the current assessment found that the assessee had correctly claimed the exemption under sections 61 to 63, thus not applicable under section 10(23FB). 3. Exemption Claims Under Different Sections of the Income Tax Act: The AO contended that the assessee had repeatedly claimed exemption under section 10(23FB) during assessment proceedings, which was found inadmissible. The CIT(A) held that the assessee's claim under sections 61 to 63 was valid, as the trust was a revocable trust, making the income taxable in the hands of the contributors. 4. Correctness of the Assessee's Contention Regarding Exemption Claims: The CIT(A) found that the assessee's contention of not claiming any exemption under section 10(23FB) was correct. The assessee argued that the exemption was claimed under sections 61 to 63, and the AO's show cause notice led to the explanation regarding section 10(23FB). 5. Examination of the Exemption Claim Under Section 10(23FB): The AO argued that the assessee's claim of exemption under section 10(23FB) was inadmissible due to violations of SEBI guidelines. The CIT(A) concluded that the assessee's trust deed and contribution agreements indicated a revocable transfer under sections 61 to 63, making the income taxable in the hands of the contributors. 6. Alteration of Exemption Claims Without Filing a Revised Return: The AO cited the Supreme Court's decision in Goetze (India) Ltd. Vs. CIT, stating that the assessee cannot amend a return for deduction claims without filing a revised return. The CIT(A) held that the trust's income was not taxable in its hands but in the contributors' hands due to the revocable nature of the trust. 7. Taxability of Income in the Hands of the Assessee: The AO argued that the income of ?32,83,77,906/- should be taxable in the hands of the assessee as a private trust carrying business, assessed at the maximum marginal rate. The CIT(A) found that the income was taxable in the hands of the contributors due to the revocable nature of the trust. 8. Compliance with the Definition of "Revocable Transfer": The CIT(A) held that the assessee trust complied with the definition of "revocable transfer" under sections 61 to 63, as the contributors had the right to revoke their contributions, making the income taxable in their hands. 9. Consideration of the Assessee as a Revocable Trust: The CIT(A) concluded that the assessee was a revocable trust, and the income arising from the trust was taxable in the hands of the contributors, not the trust itself. 10. Acceptance of Different Explanations During Assessment Proceedings: The AO argued that the assessee's change in stand during assessment proceedings was to evade taxes. The CIT(A) found that the assessee consistently claimed the applicability of sections 61 to 63, and the income was taxable in the contributors' hands. 11. Restoration of the AO's Order: The AO requested the restoration of their order, but the CIT(A) upheld the decision to delete the addition of ?32,83,77,906/- in the hands of the assessee trust. 12. Leave to Amend or Alter Grounds: The appellant sought leave to amend or alter any ground or add a new ground, which was noted in the judgment. Conclusion: The ITAT upheld the CIT(A)'s decision, confirming that the assessee trust was a revocable trust, and the income was taxable in the hands of the contributors, not the trust. The appeals of the Revenue were dismissed.
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