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TMI Blog2016 (2) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... ion u/s 10(23FB) - Decided in favour of assessee - I.T.A. No.8475/Mum/2010 - - - Dated:- 8-1-2016 - SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER For The Appellant : Shri Vijay Mehta For The Respondent : Shri Uday B Jakke ORDER PER B.R.BASKARAN,AM: The assessee has filed this appeal challenging the order dated 15.09.2010 passed by ld. CIT(A)-30, Mumbai and it relates to the assessment year 2007-08. 2. The assessee is aggrieved by the decision of ld. CIT(A) in confirming the action of AO in rejecting the claim of exemption u/s 10(23FB) of Income Tax Act, 1961 and accordingly assessing the entire income of the assessee. 3. We heard the parties and perused the record. The assessee is a venture capital fund and it is registered with the Securities Exchange Board of India (SEBI). The assessee has been formed as a private trust and the income earned by it is allocated amongst the beneficiaries in the specified ratio. In the return of income filed for the year under consideration, the assessee claimed exemption u/s 10(23FB) of the Act in respect of its entire income. The AO examined the claim of the assessee and also SEBI G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st income earned from Bank deposits. The AO took the view that the exemption u/s 10(23FB) shall be available only in respect of income earned from investments made in a Venture capital undertaking. Since the banks in which the assessee had made deposits cannot be considered as Venture capital undertakings and since the interest income is required to be assessed under the head Income from other sources, the AO held that the assessee cannot claim exemption u/s 10(23FB) of the Act on the interest income. Accordingly, the AO assessed the entire income of the assessee by determining the total income at ₹ 1.10 cr. The ld. CIT(A) also confirmed the same. Hence, the assessee has filed this appeal before us. 4. The Ld A.R advanced his arguments supporting the claim made by the assessee and the Ld D.R placed strong reliance on the order of Ld CIT(A). The ld. A.R submitted that the AO has placed reliance on SEBI (Venture Capital Fund) Regulations, 1996 (hereinafter old regulation ), which has since been repealed and replaced by Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (hereinafter New Regulation ). He submitted that the term Corpus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Alternative Investment Funds) Regulations, 2012 (referred above). We further notice that the term Corpus has not been defined under the old regulation, but the same has been defined in the new regulation as under:- Corpus means the total amount of funds committed by investors to the Alternative Investment Fund by way of a written contract or any such document as on a particular date. Since the new regulation has defined the term Corpus and since under the provision relating to Repeal and Saving (referred above), the reference to SEBI (Venture capital funds) Regulations shall be deemed to be a reference to the new regulation, we are of the view that the definition given to the term Corpus under the new regulations can be applied under the repealed old provision also. Accordingly, we are of the view that the assessee is justified in contending that the total amount of funds committed by investors shall be taken as Corpus for the purpose of section 12(b) of the old regulations also. 6. The assessee has submitted that the amount committed by the investors stand at ₹ 101.02 crores and as per the definition referred above, the same should be considered as Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of such certificate of Registration. The ld. AR further submitted that the Hyderabad Bench of the Tribunal has also considered an identical issue in the case of ACIT V/s Small is Beautiful in ITA No.1004 and 1005/Hyd/2012 (AY-2006-07 and 2007-08) order dated 4.7.2013, wherein it has followed the decision of Ahmedabad Bench of the Tribunal rendered in the case of Gujarat Information Technology Fund (supra). 9. We notice that the issue, viz., whether the assessing officer can look into the violation of the conditions, if any, prescribed in the SEBI (Venture capital fund) Regulations was considered by the Ahmedabad Bench of the Tribunal in the case of Gujarat Information Technology Fund (supra) wherein it has been held as under : (5) `Whether AO can look into whether venture capital fund fulfills conditions laid down in SEBI (Venture Capital Funds) Regulations, 1996. 24. In our considered view the AO is duty bound to enquire whether the assessee trust is registered under the Registration Act, 1908 and has been granted certificate of registration by SEBI under SEBI (Venture Capital Funds) Regulations, 1996. But his role is confined to satisfy himself with such certificates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re granting of such certificate are fulfilled. In other words conditions laid down in sub-clause (i ) and sub-clause (ii) are deemed to be fulfilled under explanation-1(b) to section 10(23FB), the moment relevant certificates are produced before the AO. Therefore, he is not required to go into violation of conditions, if any, pertaining to the matters of grant of such certificates. The Ahmedabad bench of Tribunal further observed that, so long 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 fulfills the conditions laid down under these regulations. The 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. We agree with the view taken by the Ahmedabad bench of Tribunal in the case cited above. It is the SEBI, which has final say to determine about the violation of the conditions, as it is the authority competent to deal with the same. In the instant case, the AO has made his own interpretation of the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 1,00,91,000/- is entitled to exemption u/s. 10(23FB). Section 10(23FB) as applicable to the year under appeal is as under: 'Any income of venture capital company or venture capital fund set up to raise funds for investment in a venture capital undertaking.' 14. Thus the exemption in the case of Venture Capital Fund was in respect of any income. There is no restriction or requirement regarding the source of income for grant of exemption u/s. 10(23FB). It is only by Finance Act, 2007, w.e.f.1st April, 2008, an amendment to section 10(23FB) was brought about restricting the exemption under that section to income from Investment by the Venture Capital Fund in a venture capital undertaking. For this purpose, the said clause (c) of Explanation 1 has also been amended to define Venture Capital Undertaking . This amendment was made effective from 1.4.2008. By no stretch of imagination can this amendment can be considered as clarificatory applicable to earlier Assessment Year. The memorandum explaining the amendment to the Finance Bill, 2007 as well as the CBDT circular explaining the provisions of the Finance Act, 2007 clarify that the amendment proposed to sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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