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TMI Blog2024 (7) TMI 1432X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(A) on this issue and restore the addition made by the AO on this issue. Exemption u/s 10(23FB) claiming itself to be a Venture Capital Undertaking - As the said claim has been rejected by the AO and Ld CIT(A). We notice that the assessee has not challenged the rejection of exemption u/s 10(23FB) of the Act confirmed by Ld CIT(A). Hence, this issue has attained finality for this year. Alternative/fresh claim made by the assessee without filing return of income - Exemption u/s 10(38) - Long term capital gains earned by the assessee on sale of shares of venture capital - HELD THAT:- We notice that the assessee has put forth the alternative claim before the assessing officer itself - assessee had already claimed exemption u/s 10(23FB) in the return of income and since the AO expressed the view that the assessee is not entitled to claim said exemption, the assessee has made alternative claim before him. Hence, in our view, it is only a case of change of section under which the exemption has been claimed by the assessee and it may not fall under the category of Fresh claim . Accordingly, we reject the grounds no.1 to 4 raised by the revenue. Exemption u/s 10(38) been allowed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for exemption u/s 10(23FB) has been rejected by the tax authorities, meaning thereby, the status of the assessee as a pass through entity has not been accepted by the tax authorities in this year. Hence the question of applying the provisions of sec. 115U will not arise in this year. As noticed earlier, the assessee, being a trust is legal entity and would fall under the definition of person under the Income tax Act. Hence it is assessable under the Act for the income earned by it and consequently, it is entitled to avail all types of eligible exemption provided under the Act. Accordingly, the assessee would be entitled to claim exemption of long term capital gain u/s 10(38) of the Act. In the preceding paragraphs, we have upheld the decision of Ld CIT(A) in holding that the assessee is eligible for exemption u/s 10(38) of the Act. - Justice (Retd.) Shri C.V. Bhadang, President And Shri B.R. Baskaran, Accountant Member For the Assessee : Shri Vijay Mehta For the Revenue : Shri S. Srinivasu, CIT-DR ORDER PER B.R. BASKARAN, ACCOUNTANT MEMBER : The appeal of the Revenue and the cross objection filed by the assessee are directed against the order dated 20-06-2023 passed by Ld CIT(A), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beneficiaries investors u/s. 115U, is contrary to the provisions of Act? 8. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in allowing the exemption u/s. 10(35) of the Act of Rs. 3,97,300/- earned from distribution from units held in mutual funds? 9. The appellant prays that the order of the Ld.CIT(A)on the above grounds be set-aside and that of the Assessing Officer be restored. 10. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary. 3. At the time of hearing, the Ld. A.R submitted that the assessee does not want to pursue the cross objection filed by it. 4. The facts relating to the case are discussed in brief. It is established as a trust through a trust deed dated May 12, 2006 and registered under the Registration Act, 1908. Though the assessee applied for VCF status to the SEBI on 18th May, 2006, yet it got the Certificate of registration only on 10th October, 2008. Thus the assessee became a Venture Capital Fund (VCF) as per the Securities and Exchange Board (Venture Capital Funds) Regulations, 1996 (SEBI Regulations). 5. The Venture Capital Funds are entitled to invest in Venture Capital Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as income of the assessee, i.e., the AO rejected the claim for exemption of LTCG u/s 10(23FB) 10(38) and also rejected the claim for exemption of dividend income of Rs. 3,97,300/- u/s 10(35) of the Act. 8. In the appellate proceedings, the Ld CIT(A) upheld the view of the AO that the assessee is not eligible for exemption u/s 10(23FB) of the Act. However, he accepted the alternative plea of the assessee and accordingly held that the assessee is eligible to claim exemption of LTCG u/s 10(38) of the Act. The Ld CIT(A) also allowed exemption of dividend income of Rs. 3,97,300/- u/s 10(35) of the Act, following the decision rendered by the Tribunal in the case of Aditya Birla Real Estate Fund (ITA No.7504/Mum/2019 dated 13th August 2021). 9. Aggrieved by the order passed by Ld CIT(A), the revenue has filed this appeal challenging the exemption granted by Ld CIT(A) u/s 10(38) of the Act in respect of LTCG and u/s 10(35) of the Act in respect of dividend income. The revenue has raised 10 grounds. Out of them, Ground no.9 and 10 are general in nature and hence they do not require adjudication. 10. Ground No.8 relates to the exemption granted by Ld CIT(A) in respect of dividend income. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore him. Hence, in our view, it is only a case of change of section under which the exemption has been claimed by the assessee and it may not fall under the category of Fresh claim . Accordingly, we reject the grounds no.1 to 4 raised by the revenue. 14. In ground no.5, the revenue is contending that the exemption u/s 10(38) of the Act has been allowed by the Ld CIT(A) without considering the fact that the assessee has acquired shares from the off market without paying Securities Transaction Tax (STT). 15. Admittedly, the acquisition of shares by the assessee did not suffer STT. It is the case of the assessee that its case is covered by the notification issued by the Central Government as per the third proviso to sec. 10(38) of the Act and hence, even if the assessee did not pay STT at the time of acquisition of shares, still it is eligible for exemption u/s 10(38) of the Act. We may examine the above said contention of the assessee. In this connection, we may refer to section 10(38) of the Act, as applicable to the year under consideration, which reads as under:- 10(38) any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether the assessee is eligible for exemption u/s 10(38) of the Act, the highlighted portion of sec. 10(38), viz., Clause (a), Clause (b) and the third proviso are relevant. There is no dispute with regard to the following facts:- (i) The long term capital asset transferred by the assessee consisted of equity shares in a company. (ii) The sale of shares has taken place after 2004. (iii) The sale transaction was charged to Securities Transaction Tax. Thus, the conditions prescribed in clause (a) and (b) of sec. 10(38) of the Act are fulfilled in the instant case. The contentions urged by the revenue is related to the third proviso, which is highlighted above and which prescribes one more condition that the transaction of acquisition of shares should have also suffered the Securities Transaction Tax. 17. We notice that the third proviso to sec. 10(38) of the Act empowers the Central Government to issue notification and the acquisition of shares falling under the said notification need not have suffered STT for the purpose of availing exemption u/s 10(38) of the Act. Hence sale of such kinds of shares are eligible for exemption u/s 10(38) of the Act. 18. Hence, it is necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion which has been approved by the Supreme Court, High Courts, National Company Law Tribunal, Securities and Exchange Board of India or Reserve Bank of India in this behalf; (iv) acquisition under employee stock option scheme or employee stock purchase scheme framed under the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999; (v) acquisition by any non-resident in accordance with foreign direct investment guidelines of the Government of India; (vi) where acquisition of shares of company is made under Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulation, 2011; (vii) acquisition from the Government; (viii) acquisition by an investment fund referred to in clause (a) to Explanation 1 to section 115UB of the Income-tax Act or a venture capital fund referred to in clause (23FB) of section 10 of the income-tax Act or a Qualified Institutional Buyer; (ix) acquisition by mode of transfer referred to in sections 47 or 50B of the Income-tax Act, if the previous owner of such shares has not acquired them by any mode referred to in clause (a) or clause (b) or clause (c) [other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Secy. (Tax Policy and Legislation) 19. The Ld CIT(A) has referred to the above said notification issued under sec. 10(38) of the Act and has taken the view that the assessee would be covered by the exemption provided in clause (b)(i) of the Notification and hence the LTCG earned by the assessee is eligible for exemption u/s 10(38) of the Act. The decision rendered by Ld CIT(A) on this issue are extracted below:- From the above, to put everything in perspective, in order to claim exemption under section 10(38) of the Act, the Appellant Trust must satisfy the following conditions: 1. The transaction of sale of equity shares must be undertaken after 1st October, 2004. 2. Such transaction must be chargeable to STT. 3. STT must be chargeable on the transaction of acquisition of such equity shares except the transaction of acquisition notified in Notification No. SO 1789 (E) (No.43/2017 (F No. 370142/09/2017-TPL) dated 5th June 2017. It is an undisputed fact that the Appellant Trust satisfies the first two conditions and now what is to be seen is whether it satisfies the last condition. As discussed above, it is a fact on record that the Appellant Trust acquired the equity shares on D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of shares. Accordingly, the Ld A.R submitted that the case of the assessee would be covered by the main part of notification, viz., all transactions of acquisition of equity shares entered on or after the 1st day of October, 2004 which are not chargeable to Securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004 (23 of 2004) 22. In our considered view, the above said submission of Ld A.R merits acceptance. The clauses (a) and (b) of the Notification deal with existing listed equity shares . Clause (c) deals with the case of acquisition of shares of a company which has been delisted from a recognized stock exchange. Hence all the three clauses, viz., clause (a), Clause (b) and Clause (c) are not applicable to the facts of the present case, since the assessee herein has purchased unlisted shares. Accordingly, the Ld A.R was right in mentioning that the main part of the Notification will only be applicable to the facts of the present case. Hence the shares acquired by the assessee would be covered by the main part of the notification and hence, even if the STT was not paid at the time of acquisition, the assessee would be entitled to claim exemption of LTCG u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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