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2019 (8) TMI 1909 - AT - Income TaxExemption u/s 10(23FB) - denial of exemption as assessee made investment in mutual funds and violated SEBI (VCF) Regulations and also violated the objects of clause of the trust deed - HELD THAT - AO has not disputed that the trust deed of the assessee is registered under the provisions of registration Act. Further a registration is granted to the assessee by SEBI before 21st May 2012, which is still in force. AO has not brought any material on record by making investigation from SEBI, if the funds are not regulated in accordance with SEBI (VCF) Regulations. Coordinate bench of Mumbai Tribunal in DHFL Capital Fund Vs ITO 2016 (2) TMI 269 - ITAT MUMBAI held that, so far as SEBI does not find any default of any contravention of the provisions of the SEBI Act or SEVI (VCF) Regulation 1996, then it can be inferred that the assessee-trust fulfils the conditions laid down under these regulations. Tribunal further expressed the view that the AO may report the matter of violations, if any, to the SEBI and if finally SEBI does not find any default, then the view of the AO that there is violation cannot survive. Thus, it is the SEBI, which has final authority to determine about the violation of the conditions, as it is the authority competent to deal with the same. It was also held that the AO has made his own interpretation of the term 'corpus', which was found to be incorrect as per the definition given in the new regulation which is not sustainable. Certificate of Registration of assessee in the capacity of a VCF with SEBI is still continues to subsist; that there is no adverse report brought by assessing officer taken or likely to be taken by SEBI for violation of any VCF Regulations; that the targeted investment in VCUs is within the purview of VCF Regulations of SEBI; wherein the assessee is permitted by its Trust Deed dated 18th March 2006 as well as by the VCF Regulations of SEBI to deploy the funds in units of mutual funds. Therefore, in our view, the denial of exemption prescribed under Section 10(23FB) of the Act was not warranted, we hold so. Denial of exemption u/s 10(34) and section 10(35) - income earned by assessee is a dividend from the investment made in venture capital undertaking to list of the assessee also on income from distributions from unit held in mutual funds and on the income earned from such investment in units of mutual funds - AO denied exemptions on the ground that the assessee does not qualify as VSL under the provisions of section 10(23FB) - HELD THAT - As we have already allowed exemption to the assessee under section 10(23FB) of the Act, which was the basis for denying further exemption under section 10(34) and section 10(35). Considering the fact that we have already allowed relief to the assessee on the exemption under section 10(23FB) therefore, the basis on which the assessee was denied exemption under section 10(34) and section 10(35) has already been set aside therefore the discussion on the merit of these grounds of appeal have become academic, resultantly, they assessee is also allowed exemption under section 10(34) and 10(35) of the Act. Levy interest u/s 234B - HELD THAT - Considering the fact that we have already held that assessee is entitled for exemption under section 10(23FB), 10(34) and section 10(35) of the Act, therefore, we are in agreement with the submission of assessee that provision of section 234B of the Act are only applicable in case where in the financial year the assessee who is liable to pay advance tax under section 208 of the Act has failed to pay such tax or has paid advance tax lesser than the prescribed percentage, is only liable to pay levy of interest. Considering the fact that entire income of the assessee is held as exempt income, therefore, the assessee is not liable to pay interest under section 234 of the act. Therefore, we direct the assessing officer not to levy interest under section 234B of the Act. In the result this ground of appeal is allowed.
Issues Involved:
1. Denial of exemption under section 10(23FB) of the Income-tax Act, 1961. 2. Assessment of income as 'Income from other sources' instead of under section 161(1). 3. Taxation of income already considered in the returns of the beneficiaries. 4. Denial of exemption under section 10(34) of the Act. 5. Denial of exemption under section 10(35) of the Act. 6. Status of the appellant under section 2(31) of the Act. 7. Status of the appellant as an Association of Persons (AOP). 8. Erroneous conclusions and assertions of facts by the CIT(A). 9. Interest under section 234B of the Act. Detailed Analysis: 1. Denial of Exemption Under Section 10(23FB): The assessee, a Venture Capital Fund (VCF), claimed exemption under section 10(23FB) which was denied by the Assessing Officer (AO) on the grounds of violation of SEBI (VCF) Regulations and the object clause of the trust deed. The Tribunal held that the AO's role is limited to verifying whether the assessee has a valid registration certificate from SEBI. The Tribunal cited several case laws, including "ITO Vs Gujarat Information Technology Fund" and "HDFC Property Fund Vs ITO," which support the view that the AO cannot question the SEBI registration. Since the assessee fulfilled the conditions under section 10(23FB), the Tribunal allowed the exemption. 2. Assessment of Income as 'Income from Other Sources': Given that the Tribunal allowed the exemption under section 10(23FB), the issue of assessing the income under 'Income from other sources' became academic and was not further discussed. 3. Taxation of Income Already Considered in the Returns of the Beneficiaries: Similarly, since the Tribunal granted the exemption under section 10(23FB), the issue of taxing the income already considered in the returns of the beneficiaries also became academic. 4. Denial of Exemption Under Section 10(34): The AO denied the exemption under section 10(34) on the basis that the assessee did not qualify for exemption under section 10(23FB). The Tribunal, having allowed the exemption under section 10(23FB), found no basis for denying the exemption under section 10(34) and allowed it. 5. Denial of Exemption Under Section 10(35): The AO similarly denied the exemption under section 10(35) based on the same reasoning as section 10(34). The Tribunal, having allowed the exemption under section 10(23FB), also allowed the exemption under section 10(35). 6. Status of the Appellant Under Section 2(31): The AO held that the assessee is not a 'person' under section 2(31) and thus not eligible for exemptions under section 10. The Tribunal, having allowed the exemptions under sections 10(23FB), 10(34), and 10(35), found the discussion on this ground academic. 7. Status of the Appellant as an AOP: The AO treated the appellant as an Association of Persons (AOP). The Tribunal, having granted the exemptions, found the discussion on this ground academic. 8. Erroneous Conclusions and Assertions of Facts by the CIT(A): The Tribunal did not find it necessary to delve into the erroneous conclusions and assertions of facts by the CIT(A) as the primary issues were resolved in favor of the assessee. 9. Interest Under Section 234B: The AO levied interest under section 234B, which the Tribunal found inappropriate given that the assessee's income was exempt under sections 10(23FB), 10(34), and 10(35). Therefore, the Tribunal directed the AO not to levy interest under section 234B. Conclusion: The Tribunal allowed the appeal of the assessee, granting exemptions under sections 10(23FB), 10(34), and 10(35), and directed the AO not to levy interest under section 234B. The issues regarding the assessment of income under 'Income from other sources', taxation of income already considered in the returns of beneficiaries, and the status of the appellant under section 2(31) and as an AOP were deemed academic and not further discussed.
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