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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 ..... he Act in respect of its entire income. The AO examined the claim of the assessee and also SEBI Guidelines given in SEBI (Venture Capital Fund) Regulations, 1996. The Clause 12(b) of the SEBI guidelines provided that "Venture Capital Fund shall not invest more than 25% corpus of the fund in one venture capital undertaking". The AO noticed that from the Balance sheet of the assessee that it has held Total unit contribution of Rs. 61,64,31,028/- as on 31.3.2007 and the same was invested as under : S.No. Venture Capital Undertaking Amount invested % of available corpus funds 1 M/s J S T Reality Pvt Ltd. 25,25,00,000 40.96% 2. Proficient Reality Pvt Ltd. 3,01,00,000 4.88% 3 Blue Star Realtors Pvt.Ltd 24,99,66,470 40.55% Total 53,25,66,470 Since the assessee had invested more than 25% of the contributions in the above said Venture Capital Undertaking, the AO held that the assessee has violated the provisions of Clause 12(b) of SEBI Guidelines (Venture Capital Fund) Regulations, 1996. The assessee contended before the AO that the term "corpus fund" should be taken as the amount committed by the investors and not actual contribution made by them. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und by way of a written contract or any such document as on a particular date." The ld. AR submitted that, as per the above said definition of the term "Corpus" would mean the total amount of funds committed by investors to the Alternative Investment Fund and not the actual contribution made by the investors. He submitted that the venture capital undertakings would also require funds in a phased manner in accordance with the pace of execution of projects and hence the contributions shall also be collected in a phased manner from the investors. Hence, the new Regulations have provided the definition of the term "Corpus" as the total amount of funds committed by investors, keeping in view the practicalities of the situation discussed above. 5. We have gone through the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 and section 39 contains the provisions relating to "Repeal and Saving" and the same reads as under:- "39 (1) The Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 hereby shall stand repealed. (2) Notwithstanding such repeal: (a) Anything done or any action taken or purported to have been done or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Funds) Regulation, 1996. 7. The ld. AR submitted that the assessee has not violated any of the conditions prescribed in sec. 10(23FB) of the Act and hence it is entitled to claim exemption under that section. He submitted the sec. 10(23FB) has defined „venture capital fund‟ as under as per the provisions existing at the relevant point of time:- "venture capital fund" means such fund- (i) operating under a trust deed registered under the provisions of the Registration Act, 1908 (16 of 1908) or operating as a venture capital scheme made by the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); (ii) which has been granted a certificate of registration under the Securities and Exchange Board of India Act, 1992 (15 of 1992), and regulations made thereunder; (iii) which fulfils the conditiions as may be specified, with the approval of the Central Government, by the Securities and Exchange Board of India, by notification in the Official Gazette, in this behalf; The Ld A.R submitted that the assessee is registered as a trust under the provisions of Registration Act, 1908 and it has been granted a certificate of registration under the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e concerned authorities to look into the matter and take action under the provisions of the concerned statute under which certificates are granted. In this regard the observations of the Hon. Supreme Court in the case of Gestetner Duplicators (P.) Ltd. (supra) are very relevant. In that case the Commissioner had granted recognition to the P.F. as far back as 1937. The assessee a private limited company paid to sales-men a fixed monthly salary and commission at fixed percentage of turnover and also paid employer's contribution to the P.F. on the basis of monthly salary as well as commission and credited them into individual account of these sales-men in P.F. maintained and recognized by the Commissioner. A part of such commission and consequently provident fund on such commission was sought to be disallowed. The matter went up to the Hon. Supreme Court. It observed as under:- "It would be conducive to judicial discipline and the maintaining of certainty and uniformity in administering the law that the taxing authorities should proceed on the basis that the recognition granted and available for any particular assessment year implies that the provident fund satisfies all the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SEBI. Further, there is no material to show that the SEBI has alleged or stated that the assessee has not fulfilled any of the prescribed conditions. Hence, we are of the view that the tax authorities are not justified in rejecting the claim for exemption u/s 10(23FB) of the Act. 11. We have noticed that the tax authorities have taken the view that the interest income earned from fixed deposits in banks shall not be entitled for exemption u/s 10(23FB) of the Act, since the banks cannot be considered to venture capital undertakings. For adjudicating this issue, we shall first examine the provisions of Section 10(23FB), which (as applicable to the year under consideration) reads as under:- "10 In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included--- .................. (23FB) any income of a venture capital compan or venture capital fund set up to raise funds for investment in a venture capital undertaking." The words in bold letters were replaced by the words "from investment" by Finance Act, 2007 w.e.f. 1.4.2008. The scope of exemption available under this section as well as the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the assessee is otherwise eligible for exemption u/s.10(23FB). Hence for the year under appeal, as per the provisions of section 10(23FB) as applicable to the assessment year, any income of the venture capital Fund is exempt. Hence we confirm the order of the CIT(A) and uphold his direction that that interest on temporary investments of Rs. 16,09,900/- and profit on sale Units of Mutual fund of Rs. 1,00,91,000/- is entitled to exemption u/s.10(23FB). 15. In the result, the appeal filed by the revenue is dismissed." 13. The above view is also supported by CBDT Circular of 2008 which clarifies the position as under :- "The CBDT Circular No.3 of 2008 this case has been clarified. Exemption for certain income of a venture capital company or venture capital fund. 14.2 Clause (23FB) of section 10 provides exemption in respect of any income of a venture capital company or venture capital fund set up to raise funds for investment in a venture capital undertaking. Such Venture capital undertaking has been defined in clause(c) of explanation 1 to clause (23FB) to mean a venture capital undertaking referred to in the Securities and Exchange Board of India (Venture Capital funds ..... 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