TVS Investments i Fund, CHENNAI V. ITO, CHENNAI

ITA 276/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95940 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 08-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-02-2014
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Business income; Business expenditure; Maximum Marginal Rate
• Section: 143(3)

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO. 27 6 /MDS/2014 / ASSESSMENT YEAR :200 9 - 1 0 M/S. TVS INVESTMENTS I FUND , JAYALAKSHMI ESTATE , 29, (OLD NO. 8), HADDOWS ROAD, CHENNAI 600 006. [PAN: A A BT T 5286A ] VS. THE INCOME TAX OFFICER , BUSINESS WARD XV (2) , CH ENNAI 600 034 . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI R. VIJAYARAGHAVAN , ADVOCATE / RESPONDENT BY : SHRI A.V. SREEKANTH, J CIT / DATE OF HEARING : 08 . 0 6 .201 5 / DATE OF P RONOUNCEMENT : 02. 0 9 .201 5 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : TH IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) V , CHENNAI , DATED 10 . 1 0 .20 1 3 RELEVANT TO THE ASSESSMENT YEAR 200 9 - 1 0 . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE M/S. TVS INVESTMENTS I FUND TRUST HAS FILED ITS RETURN OF INCOME BY ADMITTING NIL INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE RETURN FILED BY THE A SSESSEE WAS I.T.A. NO . 27 6 /M/ 14 2 SELECTED FOR SCRUTINY AND AFTER DUE PROCESS, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT DURING THE COURSE OF SCRUTINY PROCEEDINGS, IT WAS NOTICED THA T THE ASSESSEE HAS COLLECTED UNIT CONTRIBUTIONS FROM 65 CONTRIBUTORS AMOUNTING TO .40,35,34,375/ - . THESE CONTRIBUTORS ARE CLASSIFIED AS HIGH NET INDIVIDUALS BY THE ASSESSEE. THIS CONTRIBUTION HAS BEEN CALLED - UP AND RECEIVED BY THE ASSESSEE ON VARIOUS DATE S DURING THE COURSE OF THE RELEVANT PREVIOUS YEAR. A PERUSAL OF THE DETAILS INDICATES THAT THE ASSESSEE HAS COLLECTED THE CONTRIBUTION IN A CONCERTED, SYSTEMATIC MANNER. OUT OF THE ABOVE COLLECTION, AN AMOUNT OF .39,60,84,375/ - (639 CONTRIBUTORS) WAS TRAN SFERRED BY THE ASSESSEE TO TVS SHRIRAM GROWTH FUND IN 6 B RANCHES FROM 18.09.2008 TO 31.03.2009 FOR THE PURPOSE OF BETTER SYNERGY AND H IGHER RETURNS. THE ASSESSEE HAS RETAINED AN AMOUNT OF .64,50,000/ - (17 CONTRIBUTORS) FOR ITS OPERATIONAL ACTIVITIES AS ON 31.03.2009. IT IS ALSO SEEN THAT THE ASSESSEE HAS OBTAINED A LOAN OF . 73,02,4 78/ - FOR ITS OPERATIONAL ACTIVITIES. THE ASSESSEE HAS PARKED ITS FUNDS AMOUNTING .1,13,70,729/ - IN A SCHEDULED BANK (HDFC BANK) WHICH IS A CURRENT ACCOUNT. THE ASSESSING OFFI CER HAS FURTHER OBSERVED THAT T HE ACTIVITY OF THE ASSESSEE OF COLLECTING CONTRIBUTIONS AND TRANSFERRING A PART OF IT TO TVS SHRIRAM GROWTH FUND PREDICATES A PROFIT MOTIVE THAT PERVADES THE WHOLE SERIES OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE DURING THE ACCOUNTING YEAR. I.T.A. NO . 27 6 /M/ 14 3 3. FURTHER, THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE IS AN ASSET MANAGEMENT COMPANY AND HAS ROPED IN TVS SHRIRAM GROWTH FUND AS AN INVESTMENT MANAGER. THE ASSESSEE MANAGES THE ASSETS OF THE CONTRIBUTORS AND BY DIVERTING THE CON TRIBUTIONS TO THE INVESTMENT MANAGER, THE ASSESSEE CANNOT BE SAID TO HAVE DISOWNED THE CONTRIBUTIONS. IN EFFECT, THE FUNDS OF THE CONTRIBUTORS LIE WITH THE ASSESSEE ENTITY ONLY. T HE ASSESSEE'S CONTENTION THAT BY PARKING THE FUNDS WITH TVS SHRIRAM GROWTH FU ND IN ITS CAPACITY AS AN ASSET MANAGER, THE INTEREST INCOME ARIS I NG FROM THE CONTRIBUTION MADE BY HNI (HIGH NETWORTH INDIVIDUALS) CONTRIBUTORS WITH THE ASSESSEE GETS TRANSFERRED TO THE GROWTH FUND IS NOT ACCEPTABLE. EVEN AFTER THE FUNDS GO INTO THE POSSESS ION OF THE GROWTH FUND, IT IS THE ASSESSEE WHO IS ANSWERABLE TO THE CONTRIBUTORS AND THEREFORE, THE ASSESSEE'S POINT OF VIEW IS NOT TENABLE. IT WOULD BE WORTHWHILE TO NOTE, IN THIS REGARD, THAT EVEN THE TDS CERTIFICATES ISSUED BY THE RESPECTIVE BANKS ON TH E DEDUCTION OF TAX ON THE INTEREST PAID HAS BEEN ISSUED ONLY IN THE NAME OF THE ASSESSEE AND NOT IN NAME OF THE GROWTH FUND. IN THE CIRCUMSTANCES, THE INTEREST INCOME DERIVED BY THE ASSESSEE FROM BANKS IS ASSESSABLE IN THE ASSESSEE'S HANDS ONLY. ACCORDINGL Y, THE INTEREST INCOME OF . 1 ,38,83,203/ - (AS PER THE TDS CERTIFICATES FURNISHED BY THE ASSESSEE) IS BROUGHT TO TAX AS 'BUSINESS INCOME' OF THE ASSESSEE. I.T.A. NO . 27 6 /M/ 14 4 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A), AFTER CONSIDER ING THE SUBMISSIONS OF THE ASSESSEE, HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBSERVING AS UNDER: 5. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSION MADE BY THE AR OF THE APPELLANT. THE ASSESSEE IS A CONTRIBUTED TRUST UNDER THE INDIAN TRUST ACT 1882 BY WAY OF A TRUST DEED AND IS REGISTERED UNDER THE INDIAN REGISTRATION ACT 1908. ITS BENEFICIARIES ARE KNOWN AND SHARES OF EACH INDIVIDUAL BENEFICIARY ARE DETERMINATE. THE MAIN PURPOSE IN FORMING A CONTRIBUTED TRUST IS TO MOBILIZE CAPITAL FR OM VARIOUS INDIVIDUALS TO CARRY ON THE VENTURE CAPITAL FUND ACTIVITIES AND ACCORDINGLY COLLECTED CONTRIBUTIONS FROM VARIOUS PERSONS AND INVESTED IN THE FIXED DEPOSITS OF VARIOUS BANKS PENDING COMMENCEMENT OF VENTURE CAPITAL ACTIVITIES. THE BENEFICIARIES OF THE APPELLANT, UPON FORMATION OF TVS SHRIRAM GROWTH FUND SEBI REGISTERED VENTURE CAPITAL FUND HAVE OPTED TO TERMINATE THEIR INVESTMENT WITH THE APPELLANT. ALL THE INVESTORS OPTED TO TRANSFER ALL THE CAPITAL COMMITMENTS TOGETHER WITH INCOME AND EXPENDITURE TO TVS SHRIRAM GROWTH FUND EXCEPT FOR 17 INVESTORS WHO OPTED FOR CLOSURE OF THEIR INVESTMENTS WITH THE APPELLANT. THE APPELLANT RETAINED THE SHARE OF INCOME/EXPENDITURE RELATING TO THOSE CONTRIBUTORS AND APPORTIONED THE INCOME AND EXPENDITURE AS PER THEIR SHARE OF BENEFICIAL INTEREST FOR INCLUDING THE SAME IN THE RETURN OF INCOME FILED BY THE RESPECTIVE BENEFICIARIES. ALL THE BENEFICIARIES ARE HAVING THEIR PAN INDICATED THE SHARE OF BENEFICIAL INTEREST IN THE RETURN OF INCOME FILED BY THE APPELLANT. THE AP PELLANT BEING A REPRESENTATIVE ASSESSEE FILED ITS RETURN OF INCOME AS 'NIL' INDICATING THE FACT THE INCOME/EXPENDITURE IS BEING OFFERED BY THE RESPECTIVE BENEFICIARIES IN THEIR RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR THE APPELLANT CLAIMED A REFUND O F RS.28,04,614/ - ON THE TAX DEDUCTED AT SOURCE ON THE INTEREST RECEIVED ON BEHALF OF TVS SHRIRAM GROWTH FUND SINCE THE INVESTMENTS WERE MADE IN THE NAME OF THE APPELLANT. 5.1 THE ASSESSING OFFICER REJECTED IN HIS ASSESSMENT ORDER, THE STATUS OF APPELLAN T AS A DETERMINATE TRUST AND ASSESSED THE INCOME OF THE APPELLANT AS INCOME FROM PROFITS AND GAINS OF BUSINESS OF A BUSINESS CONCERNED TAXING THE INCOME AT MAXIMUM MARGINAL RATE. THE APPELLANT HAS OBJECTED TO THE ADDITION MADE AS THE BENEFICIARIES ARE KNOW N AND THEIR SHARE OF BENEFICIAL INTEREST IS DETERMINATE. THUS THE ASSESSING OFFICER HAS BROUGHT AN AMOUNT OF RS.1,38,83,203/ - REPRESENTING THE INTEREST INCOME EARNED OUT OF FIXED DEPOSITS ON WHICH I.T.A. NO . 27 6 /M/ 14 5 TDS WAS MADE AND CLAIMED AS REFUND BY THE APPELLANT WAS BRO UGHT TO TAX AS INCOME OF THE APPELLANT. THE APPELLANT FURTHER SUBMITTED THAT THE SAID INCOME WAS ALREADY OFFERED IN THE RETURN OF INCOME FILED BY TVS SHRIRAM GROWTH FUND FOR THE ASSESSMENT YEAR. HOWEVER, THE ASSESSING OFFICER TREATED THE INCOME SHOWN IN TH E TVS SH RI RAM GROWTH FUND AS THE INVESTMENT OF THE APPELLANT. 5.2 THE ASSESSING OFFICER HAS TREATED THE ACTIVITIES OF THE APPELLANT AS BUSINESS IN THE SENSE THE APPELLANT HAS COLLECTED THE CONTRIBUTION IN CONCERTED AND A SYSTEMATIC MANNER FROM ALL 656 CO NTRIBUTORS AMOUNTING TO RS.40,35,34,375/ - WHO ARE ALL HIGH NETWORK INDIVIDUALS. EVEN RETAINING THE AN AMOUNT OF RS.64.50.000/ - FROM 17 CONTRIBUTORS FOR ITS OPERATIONAL ACTIVITIES AS ON 31.03.2009 APART FROM THE OBTAINING A LOAN OF RS.73.02,478/ - ITSELF IND ICATING CONTINUOUS OF BUSINESS ACTIVITIES. THE ASSESSEE HAS PARKED ITS FUNDS AMOUNTING TO RS.1.13.70.729/ - IN HDFC BANK IN A CURRENT ACCOUNT. IN ORDER TO EARN INTEREST FOR MEETING ITS OPERATIONAL EXPENSES THUS MAKES IT CLEAR THE OBJECTIVE OF EARNING PROFIT . I CONCUR WITH THE VIEW TAKEN BY THE ASSESSING OFFICER THAT BECAUSE OF THE APPELLANT COMMERCIAL ACTIVITIES, IT IS CARRYING ON BUSINESS ACTIVITY EVEN TRANSFERRING A PART OF CONTRIBUTION TO TVS SHRIRAM GROWTH FUND ITSELF INDICATING A PROFIT MOTIVE CARRIED O N BY THE ASSESSEE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER PLACED HIS RELIANCE IN SUPPORT OF TREATING THE ACTIVITY OF THE BUSINESS ON THE DECISION OF THE APEX COURT IN THE CASE OF MANMOHAN DAS (DECEASED) VS. CIT 59 ITR 699 (SC) WHICH IS SQUARELY APPLICABLE IN THE CASE OF THE APPELLANT. SIMILAR VIEW HAS ALSO BEEN EXPRESSED IN 25 ITR 449 (LAKSHMINARAYAN). HENCE, THE APPELLANT'S VERSION THAT THE APPELLANT IS A REPRESENTATIVE ASSESSEE IS REJECTED. SIMILARLY THE ASSESSEE MANAGES THE ASSETS OF CONTRIBUTORS AND BY DIVERTING THE CONTRIBUTIONS TO THE INVESTMENT MANAGER I.E. TVS SHRIRAM GROWTH FUND, THE ASSESSEE CANNOT ESCAPE THE INTEREST INCOME ARISING FROM THE CONTRIBUTIONS MADE BY THE HIGH NETWORK INDIVIDUALS HENCE, IT IS HELD THAT THE ASSESSEE IS ANSWERABLE TO THE CONTRIBUTORS AND HAS TO RESPONSIBLE FOR THE INCOME EARNED ON ACCOUNT OF INTEREST WHICH IS OTHERWISE PROVED EVEN BY THE TDS CERTIFICATES ISSUED BY THE RESPECTIVE BANKS ONLY IN THE NAME OF THE ASSESSEE AND NOT IN THE NAME OF GRO WTH FUND. THUS, THE ASSESSING OFFICER HAS CORRECTLY WORKED AND ASSESSED THE INTEREST INCOME DERIVED BY THE ASSESSEE FROM BANKS IN ITS HANDS ONLY, HENCE THE ADDITION MADE AT RS.1,38,83,203/ - AS BUSINESS INCOME OF THE ASSESSEE IS HEREBY CONFIRMED REJECTING T HE APPELLANT'S ARGUMENTS. 5. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. I.T.A. NO . 27 6 /M/ 14 6 6. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE AMOUNT RECEIVED BY THE ASSESSEE IN THE FORM OF INTEREST IS NOT THE INCOME OF THE ASSESSEE. IT IS THE INCOME OF THE BENEFICIARIES AND THE SAME HAS BEEN TRANSFERRED TO THEM. ALTERNATIVELY, HE HAS SUBMITTED THAT WHATEVER TAX RATE APPLICABLE TO THE BENEFICIARIES, THE SAME TAX RATE MAY BE APPLIED TO THE ASSESSEE. HE FURTHER ARGUED THAT IF THE ACTIVITY OF THE ASSESSEE IS TREATED AS BUSINESS ACTIVITY, THEN THE EXPENDITURE INCURRED BY THE ASSESSEE MAY BE ALLOWED. 7. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE BEFORE THE ASSESSING OFFICER THAT THE INTEREST INC OME RECEIVED BY THE ASSESSEE HAS BEEN TRANSFERRED TO THE BENEFICIARIES. IN SO FAR AS TAX RATE IS CONCERNED, THE BENEFICIARIES RATE IS DIFFERENT FROM THE ASSESSEE AND THEREFORE, THE SAME TAX RATE CANNOT BE APPLIED. 8. WE HAVE HEARD BOTH SIDES, PERUSED T HE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE, M/S. TVS INVESTMENTS I FUND A PRIVATE TRUST, COLLECTED UNIT CONTRIBUTIONS FROM 65 CONTRIBUTORS AMOUNTING TO .40,35,34,375/ - . THESE CONTRIBUTORS ARE CLASSIFIED AS HIGH NET INDIVIDUALS BY THE ASSESSEE. THIS CONTRIBUTION HAS BEEN CALLED - UP AND RECEIVED BY THE ASSESSEE ON VARIOUS DATES DURING THE COURSE OF THE RELEVANT PREVIOUS YEAR. OUT OF THE AMOUNT COLLECT ED ABOVE , AN AMOUNT OF .39,60,84,375/ - (639 CONTRIBUTORS) WAS TR ANSFERRED BY THE I.T.A. NO . 27 6 /M/ 14 7 ASSESSEE TO TVS SHRIRAM GROWTH FUND IN 6 B RANCHES FROM 18.09.2008 TO 31.03.2009 FOR THE PURPOSE OF BETTER SYNERGY AND H IGHER RETURNS. THE ASSESSEE HAS RETAINED AN AMOUNT OF .64,50,000/ - (17 CONTRIBUTORS) FOR ITS OPERATIONAL ACTIVITIES AS ON 31.03.2009. T HE ASSESSEE HAS OBTAINED A LOAN OF . 73,02,4 78/ - FOR ITS OPERATIONAL ACTIVITIES. THE ASSESSEE HAS ALSO PARKED ITS FUNDS AMOUNTING .1,13,70,729/ - IN HDFC BANK CURRENT ACCOUNT. THE ASSESSING OFFICER, KEEPING IN VIEW OF THE ABOVE SYSTEMATIC ACTIVITY OF THE ASSESSEE, CONCLUDED THAT THE ASSESSEES ACTIVITY IS A BUSINESS ACTIVITY AND THE INTEREST INCOME RECEIVED BY THE ASSESSEE OF .1,38,83,203/ - WAS TREATED AS BUSINESS INCOME. HOWEVER, HE HAS NOT ALLOWED ANY EXPENDITURE. THE LD. CIT(A) CONFIRME D THE ORDER PASSED BY THE ASSESSING OFFICER. BEFORE US, THE MAIN CONTENTION IS THAT WHATEVER THE INTEREST INCOME RECEIVED BY THE ASSESSEE HAS ALREADY BEEN TRANSFERRED TO THE BENEFICIARIES. THEREFORE, IT CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE. THE VE RY SAME PLEA HAS BEEN TAKEN BEFORE THE ASSESSING OFFICER AND THE ASSESSING OFFICER HAS NOT BELIEVED THE STATEMENT OF THE ASSESSEE. UNDER THESE FACTS AND CIRCUMSTANCES, WE FIND IT APPROPRIATE TO REMIT THE ISSUE BACK TO THE ASSESSING OFFICER TO CONSIDER THE ISSUE AFRESH, PARTICULARLY, WHETHER, THE ASSESSEE HAS TRANSFERRED THE INCOME EARNED BY IT TO THE BENEFICIARIES OR NOT ? IF THE VERY SAME INCOME IS TAXED IN THE HANDS OF BENEFICIARIES, THEN IT CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE. FURTHER, IF THE ASS ESSEE HAS NOT ABLE TO PRODUCE RELEVANT DETAILS TO SATISFY THE ASSESSING OFFICER THAT THE INTEREST I.T.A. NO . 27 6 /M/ 14 8 AMOUNT IS TRANSFERRED TO THE BENEFICIARIES, THE SAME AMOUNT MAY BE TAXED IN THE HANDS OF THE ASSESSEE AS ITS INCOME IN ACCORDANCE WITH LAW. WE FURTHER DIRECT THE ASSESSING OFFICER THAT IF THE ASSESSEE HAS INCURRED ANY EXPENDITURE RELATING TO EARNING THE INTEREST INCOME, THE SAME MAY BE ALLOWED AS BUSINESS EXPENDITURE, IF THE ACTIVITY OF THE ASSESSEE IS TREATED AS BUSINESS ACTIVITY. ACCORDINGLY, THE GROUND RAISE D BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON WEDNESDAY, THE 02 ND SEPTEMBER , 2015 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( V. DURGA RAO ) JUDICIAL MEMBER CHENNAI, DATED, THE 02 . 0 9 .201 5 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.