ITO, Ward 6(2), Pune V. Sicom Venture Capital Fund, Pune

ITA 405/PUN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76286 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 08-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Assessee Lawyers: LALIT AGRAWAL
• Section: 6; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 405/PN/2013 (ASSESSMENT YEAR 2005-06 ) ITO, WARD-6(2), PUNE .. APPELLANT VS. SICOM VENTURE CAPITAL FUND, KUBERA CHAMBERS, DR. RAJENDRA PRASAD ROAD, OPP : SANCHETI HOSPITAL, SHIVAJINAGAR, PUNE-411005 .. RESPONDENT PAN NO.AABTS9799K ASSESSEE BY : SHRI JAYANT BHATT & SHRI LALIT AGRAWAL REVENUE BY : SHRI P. L. PATHADE DATE OF HEARING : 25-03-2014 DATE OF PRONOUNCEMENT : 26-03-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 11-06-2012 OF THE CIT(A)-III, PUNE RELATING TO ASSE SSMENT YEAR 2005-06. 2. THIS IS THE SECOND ROUND OF LITIGATION BEFORE TH E TRIBUNAL. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A TRUST AN D FILED ITS RETURN OF INCOME ON 25-10-2005 DECLARING NIL INCOME. THE ASSESSEE IS E NGAGED IN THE BUSINESS OF PRIVATE VENTURE CAPITAL ASSISTANCE BY WAY OF INV ESTMENT IN EQUITY CAPITAL. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSING OFFICER OBSERVED THAT THE TRUST HAS A TOTAL CORPUS FUND OF RS.21,60, 00,000/-. THE INVESTMENT IN VENTURE CAPITAL AS PER THE ACCOUNTS WAS AS UNDER : 2 I. INVESTMENT IN UNQUOTED EQUITY SHARES RS.10,89,90, 080/- II. INVESTMENTS IN QUOTED EQUITY SHARES RS. 6,65,7 50/- III. INVESTMENTS IN CONVERTIBLE DEBENTURES RS. 1,65, 49,500/- IV. INVESTMENTS IN UNQUOTED PREFERENCE SHARES RS.1,47, 60,000/- ------------------------ RS.14,09,65,330/- ------------------------ 2.1 THE BALANCE CORPUS FUND ALONG WITH RETAINED EAR NINGS OF RS.7,50,34,670/- HAS BEEN EITHER INVESTED IN DEPOSI T ACCOUNT OR CURRENT ACCOUNT ALONG WITH ADVANCES ETC. THE ASSESSING OFF ICER OBSERVED THAT OUT OF THE CORPUS FUND OF RS.21.60 CRORES THE ASSESSEE HAS INVESTED ONLY PART AMOUNT AND INVESTMENT PERCENTAGE COMES TO 65% WHICH IS BELOW THE PRESCRIBED LIMIT AS PER SEBI REGULATIONS AND THE BA LANCE AMOUNT HAS BEEN KEPT IN THE BANK ON WHICH SUBSTANTIAL INTEREST HAS BEEN EARNED BY THE ASSESSEE. HE OBSERVED FROM THE PROFIT AND LOSS ACC OUNT THAT THE ASSESSEE HAS EARNED INTEREST OF RS.61,33,700/- ON THE DEPOSITS M ADE IN THE BANK. THE ASSESSEE HAS DECLARED THE INTEREST INCOME FROM OTHE R SOURCES AND HAS DETERMINED THE BUSINESS LOSS OF RS.33,05,262/-. AFT ER DEDUCTING THIS BUSINESS LOSS AGAINST THE INTEREST INCOME ASSESSEE HAS SHOWN NET INCOME OF RS.28,28,442/-. AFTER DEDUCTING EXEMPTION U/S.10(3 4) AT RS.8,53,398/- THE ASSESSEE HAS CLAIMED THE ENTIRE INCOME AS EXEMPT U/ S.10(23FB). 2.2 THE ASSESSING OFFICER REFERRED TO THE PROVISION S OF SECTION 10(23FB) AND OBSERVED THAT THE PLAIN READING OF THE ABOVE SE CTION REVEALS THAT THE INCOME OF THE VENTURE CAPITAL FUND SET TO RAISE FUN DS FOR INVESTMENT IN VENTURE CAPITAL UNDERTAKING IS EXEMPT FROM TAX SUBJ ECT TO FULFILMENT OF CERTAIN CONDITIONS. HOWEVER, HE OBSERVED THAT THE INVESTMENT IN UNLISTED SHARES IS ONLY TO THE EXTENT OF RS.10,89,90,080/- C OUPLED WITH OTHER INVESTMENTS OF RS.3,19,75,250/- AGAINST THE CORPUS OF RS.21.60 CRORES. THE INVESTMENT IN UNLISTED SHARES IS HARDLY 50% AND CON SIDERING THE OTHER 3 INVESTMENT THE SAME COMES TO 15%. HE, THEREFORE, H ELD THAT AT NO POINT OF TIME THE INVESTMENT OF THE ASSESSEE HAS BEEN AT THE LEVEL OF 66.67% AS STIPULATED BY THE SEBI AS PER EARLIER RECORD. IN V IEW OF THE ABOVE AND FOLLOWING HIS ORDER FOR A.Y. 2004-05 WHICH HAS BEEN CONFIRMED BY THE CIT(A) THE ASSESSING OFFICER HELD THAT THE INTEREST EARNED ON THE AMOUNTS DEPOSITED IN THE BANK ACCOUNT CANNOT COME UNDER THE PURVIEW OF EXEMPTION U/S.10(23FB). HE HELD THAT THE CONDITIONS LAID DOW N BY THE SEBI FOR ASSESSEE TO BE A VENTURE CAPITAL FUND HAVING NOT BE EN SATISFIED THE EXEMPTION U/S.10(23FB) CANNOT BE ALLOWED TO THE ASSESSEE. IN ABSENCE OF ANY PROOF GIVEN TO HIM HE ALSO DISALLOWED THE CLAIM U/S.10(34 ) OF THE I.T. ACT AMOUNTING TO RS.8,53,398/-. 2.3 THE ASSESSEE CHALLENGED THE ORDER OF THE ASSESS ING OFFICER BEFORE THE CIT(A) WHO GAVE RELIEF TO THE ASSESSEE. ON FURTHER APPEAL BY THE REVENUE, THE TRIBUNAL VIDE ITA NO.338/PN/2009 ORDER DATED 30 -11-2009 RESTORED THE ISSUE TO THE FILE OF THE CIT(A) BY OBSERVING AS UND ER : 2. AFTER HEARING BOTH THE SIDES WE HAVE NOTICED THAT THE AO AS WELL AS CIT(A) HAVE FOLLOWED THE PAST HISTORY OF THE CASE AND THEREFORE IN IDENTICAL MANNER DECIDED THE ISSUE ON THE SAME LINES. NOW BEFOR E US THREE DECISIONS OF THIS TRIBUNAL ARE PLACED ON RECORD AS LISTED BELOW. 1. SICOM VENTURE CAPITAL FUND V. ITO, TECH.III, PUN E, ITA NO.738/PN/08, A.Y. 2003-04 ORDER DATED 15-10-2009. 2. SICOM VENTURE CAPITAL FUND V. DCIT, C-6, PUNE, I TA NO.223/PN/08, A.Y. 2004-05, ORDER DATED 29-05-009. 3. IVO V. SICOM VENTURE CAPITAL FUND, ITA NO.838/PN /09, A.Y. 2006-07, ORDER DATED 30-09-2009. 3. FROM THE SIDE OF THE REVENUE LEARNED DR MR. AMRI NDER KUMAR HAS SUPPORTED THE ORDER OF AO AND ARGUED THAT THE CIT(A) HAS ERRED IN APPRECIATING THE L EGISLATIVE INTENT OF CLAUSE OF (23FB) OF SECTION 10 WHICH PRESCRIBES THAT ANY INCOME FROM INVESTMENT MADE IN A VENTURE CAPITAL UNDERTAKING WOULD BE INCLUDED IN COMPUTING THE TOTAL INCOME. HE HAS EMPHASIZED THAT THE STATUTE HAS NOT INTENDED TO INC LUDE ANY INCOME OR THE INCOME FROM THE OTHER SOURCES FOR THE PURPOSE O F GRANT OF RELIEF BUT 4 GRANTED THE SAID BENEFIT ONLY IN RESPECT OF INCOME OF A VENTURE CAPITAL COMPANY GENERATED OUT OF VENTURE CAPITAL FUND. 4. THIS ISSUE IS NOW SETTLED BY THE ABOVE CITED THR EE DECISIONS HOWEVER TO ASCERTAIN INVESTIBLE FUNDS THE MATTER HAS BEEN ALREADY RESTORED BY THE RESPECTED CO-ORDINATE BENCH AND THE RELEVANT PARA 9 FROM ORDER DATED 29 TH MAY 2009 (SUPRA) ARE PRODUCED BELOW : 9. WE SEE SUBSTANCE IN SHRI BHATTS PLEA. THE EXPR ESSION INVESTIBLE FUNDS IN A NEATLY DEFINED EXPRESSION U NDER RULE 2(HH) AND IT CONNOTES CORPUS NET OF EXPENSES FOR ADMINIST RATION AND MANAGEMENT OF FUNDS. TO ARRIVE AT INVESTIBLE FUNDS , THEREFORE, TRUST MANAGEMENT AND ADMINISTRATION EXPENSES ARE TO BE REDUCED FROM THE CORPUS AMOUNT. THE CIT(A), THUS, WAS CLEA RLY IN ERROR IN THIS COMPUTATIONS EXTRACTED EARLIER IN THIS ORDER. WE DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE C IT(A) FOR THE LIMITED PURPOSES OF VERIFYING INVESTMENT PATTERN VI S--VIS CORRECT INVESTIBLE FUNDS COMPUTED IN THE LIGHT OF THE ABOVE DIRECTIONS OF THE INVESTMENT PATTERN AT THE END OF LIFE CYCLE AND IN THE LIGHT OF THE ABOVE OBSERVATIONS, SATISFY SEBI. GUIDELINES, HE W ILL GRANT EXEMPTION U/S.10(23FB). 4.1 AS FAR AS THE QUESTION OF INTERPRETATION OF TER M ANY INCOME THE SAME HAS ALSO BEEN TOUCHED-UPON THE CO-ORDINATE BEN CH IN THE ORDER DATED 15 TH OCTOBER, 2009 (SUPRA) WHILE DECIDING THE APPEAL AG AINST AN ORDER OF CIT PASSED U/S.263 OF THE ACT, RELEVANT PA RA 9 IS REPRODUCED BELOW : 9. IN THE LIGHT OF THE ABOVE SETTLED POSITION, WE PROCEED TO EXAMINE WHETHER THE ISSUE UNDER CONSIDERATION HAS T WO VIEWS OR NOT. IN THIS CONTENT, WE HAVE ANALYSED WHETHER THE LANGUAGE USED IN CLAUSE 10(23FB) HAS TWO POSSIBLE VIEWS AND CONSE QUENTLY THE INTEREST INCOME IS EXEMPT FROM TAX. CLAUSE (23FB) OF SECTION 10 READS AS FOLLOWS : (23FB) ANY INCOME OF A VENTURE CAPITAL COMPANY OR REVENUE CAPITAL FUND IN A VENTURE CAPITAL UNDERTAKI NG. FROM THE ABOVE, WE FIND THERE IS NO AMBIGUITY ON THE LANGUAGE AND 'ANY INCOME OF A ' VENTURE CAPITAL FUND IS EXEMPT AND THEREFORE, THE INTEREST INCOME EARNED FROM THE BANK SHOULD ALSO BE EXEMPT AS THE SAME IS OF THE VENTURE CAPITAL FUND. WHERE THERE IS NO AMBIGUITY, THERE IS NO NEED FOR RESTORING OTHER SOURCES SUCH AS MARG INAL NOTE, LANGUAGE OF THE EXPLANATORY NOTE TO THE FINANCE BIL L ETC. AS ARGUED BY THE COUNSEL OF THE ASSESSEE. CONSEQUENTLY, THE CITS VIE W THAT ONLY THE INCOME OF THE ASSESSEE EARNED FROM THE INVESTMENT OR VEN TURE CAPITAL FUND HAS CONTRIBUTED TO THE EXISTENCE OF ANOTHER VIEW ON THE ISSUE. IN EFFECT, THE CIT REJECTED THE VIEW OF THE AO, WHICH IS A POSSIBLE AND A PERMISSIBLE VIEW AND THE SAME IS NOT PROPER IN VIEW OF THE SETTLED POSITION DISCUSSED ABOVE. FURTHER, ON THE ISSUE OF EXIST ENCE OF TWO VIEWS, IT IS ALSO PERTINENT TO NOTE THAT CIT(A) AFFIR MED THE VIEWS OF THE A.O. IN THE LATTER ASSESSMENT YEARS AS DISCUSSED ABOVE. UN DER THESE CIRCUMSTANCES, THE EXISTENCE OF TWO VIEWS HAS TO BE CONF IRMED. THUS, WE OF THE CONSIDERED OPINION, THAT THE CIT HAS INCORR ECTLY ASSUMED JURISDICTION U/S.263 OF THE ACT. WE DO NOT SUBSCRIBE T O THE FINDING OF THE CIT THAT THERE ARE NO TWO VIEWS POSSIBLE ON THE ISSU E IN QUESTION. THIS IS FOR THE REASON THAT LANGUAGE USED IN THE SAID CL AUSE (23FB) AND IN THE EXPLANATORY NOTE TO FINANCE BILL, 2000 ARE D IFFERENT AND SUCH 5 DIFFERENCES, ITSELF IS CAPABLE OF GENERATING TWO VIEWS. IN ADDITION, WHETHER THE INTEREST INCOME IS COVERED WITHIN THE AMB IT OF THE EXPRESSION ANY INCOME. . . . . ALSO HAS TWO VIEWS AS EV IDENT FROM THE FACT THAT A.O. ORIGINALLY HELD IN FAVOUR OF THE ASSESSE E FOR THE YEAR UNDER CONSIDERATION AND A.O. DECIDED THE SAME ISSUE AG AINST THE ASSESSEE FOR A.Y. 2005-06, CIT-III DECIDED AGAINST THE A SSESSEE AND CIT(A) DELETED THE ADDITION FOR A.Y. 2005-06 AND TH E REVENUE ACCEPTED THE DECISION OF THE CIT(A) FOR THAT YEAR. CONSEQUENT LY, THE ORDER OF THE CIT PASSED U/S.263 IS SET-ASIDE AND THE ORDER OF THE A.O . IS RESTORED. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOW ED. 5. IN THE LIGHT OF THE PRECEDENTS CITED ABOVE PARTIC ULARLY PRONOUNCED IN ASSESSEES OWN CASE AND THE REASONS SET OUT THEREIN, WE HERE BY REMIT THIS ISSUE BACK TO THE FILE OF LD.CIT(A) FOR LIMITED PURPO SE TO DECIDE AS PER LAW IN ACCORDANCE OF THE GUIDELINES LAID DOWN IN THE ABOVE CITED DECISIONS. 3. AFTER THE MATTER WAS SET-ASIDE TO THE FILE OF CI T(A) THE ASSESSEE FILED VARIOUS SUBMISSIONS. IT WAS SUBMITTED THAT THE ISS UE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ITA NO.223/PN/2008 ORDER DATED 29-05-009 FOR A.Y. 2004- 05. IT WAS SUBMITTED THAT THE TRIBUNAL DID NOT HAVE THE BENEFIT OF THE A PPEAL ORDER FOR A.Y. 2004- 05, THEREFORE, THE MATTER WAS RESTORED BACK ONLY FO R THE TECHNICAL PURPOSE OF ASCERTAINING THE CORRECT INVESTIBLE FUNDS AND VERIF YING THE INVESTMENT PORTION. IT WAS ARGUED THAT SINCE THE FACTS IN THE PRESENT ASSESSMENT YEAR ARE IDENTICAL TO A.Y. 2004-05, THEREFORE, APPROPRIATE O RDER MAY BE PASSED. 4. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) HELD THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN DENY ING THE EXEMPTION CLAIMED BY THE ASSESSEE U/S.10(23FB). WHILE DOING SO, HE A LSO REFERRED TO THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 VIDE ITA NO.838/PN/2009 ORDER DATED 30-09-2009. THE RELEVAN T OBSERVATION OF THE LD.CIT(A) READS AS UNDER : 3. THE SUBMISSIONS MADE BY THE LEARNED COUNSELS FO R THE APPELLANT HAVE BEEN CAREFULLY EXAMINED WITH REFERENCE TO THE MATER IAL PLACED ON RECORD. IN THIS CASE, THE MATTER WAS REMITTED BACK TO THE FILE OF THE CIT(A) BY THE ITAT, PUNE FOR THE LIMITED PURPOSE OF VERIFYING INV ESTMENT PATTERN VIS-A- VIS CORRECT INVESTIBLE FUNDS COMPUTED IN THE LIGHT OF THE PROVI SIONS OF RULE 2(HH) OF SEBI (VENTURE, CAPITAL FUNDS) REGULATIONS, 1996 AND GRAN T 6 'EXEMPTION U/S 10(23FB), IF THE CONDITIONS/GUIDELINES LAID DOWN BY SEBI ARE FULFILLED. ON PERUSAL, IT IS SEEN THAT THE ISSUE IS SQUARELY COVERED BY THE APPELLATE ORDER DATED 31/12/2010 PASSED BY THIS OFFICE IN APPELLANT'S OWN CASE FOR THE A.Y. 2004-05 IN APPEAL NO.PN/CIT(A)- III/DCIT CIR-6/953/06-07 WHEREIN, ON DUE VERIFICATI ON, IT WAS FOUND THAT THE INVESTMENTS TO PRESCRIBED PERCENTAGE OF 66 .67% OF THE INVESTIBLE FUNDS HAS BEEN ACHIEVED BY THE APPELLANT DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2005-06 AND THIS PO SITION WAS ALSO ACCEPTED BY THE CIT(A)-II, PUNE IN THE FIRST APPELL ATE ORDER PASSED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. FOR THE PURPOSE OF READY REFERENCE, THE RELEVANT PORTION OF THE APPELLATE OR DER DATED 31/12/2010 PASSED BY THIS OFFICE FOR THE A.Y. 2004-05 EXTRACTED AS UNDER : ' .... IN THE CASE OF THE APPELLANT, AS PER THE DET AILS FURNISHED IN THE TABLE REPRODUCED HEREINABOVE, THE PRESCRIBED PERCENTAGE O F 66.67% WAS ACHIEVED DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2005- 06 I.E. WITHIN THE LIFE CYCLE OF VENTURE CAPITAL FU ND. THIS POSITION WAS ACCEPTED BY THE CIT(A)-II, PUNE IN THE APPELLATE OR DER FOR THE ASSESSMENT YEAR 2005-06 IN APPELLANT'S OWN CASE WHEREIN IT WAS OBSERVED AS UNDER : 'NOW, IT IS NOTICED THAT THE CONDITION FOR GRANTING EXEMPTION U/S. 10(23FB) OF THE ACT FOR A VENTURE CAPITAL FUND HAS BEEN MENTIONED IN THE SEBI GUIDELINES UNDER REGULATION 12(D)(I) WH ICH STIPULATES THAT A VENTURE CAPITAL FUND WAS TO MAKE INVESTMENT OF ATLEAST 66.67% OF THE 'INVESTIBLE FUNDS' IN UNLISTED EQUITY SHARES OR EQUITY LINKED INSTRUMENTS OF VENTURE CAPITAL UNDERTAKINGS. FURTHER, 'INVESTIBLE FUNDS' HAVE BEEN DEFINED IN THE SEBI REGULATIONS 2( HH) WHICH STATES THAT INVESTIBLE FUNDS MEANS CORPUS OF THE FUND NET OF EXPENDITURE FOR ADMINISTRATION AND MANAGEMENT OF THE FUND; THE TERM 'EQUITY LINKED INSTRUMENTS' IS DEFINED BY SEBI REGULATION 2 (EE) TO INCLUDE INSTRUMENTS CONVERTIBLE INTO EQUITY SHARES OR SHARE WARRANTS, PREFERENCE SHARES, DEBENTURES COMPULSORILY [OR OPTI ONALLY], CONVERTIBLE INTO EQUITY. ACCORDINGLY, IT HAS BEEN EXPLAINED BY T HE ASSESSES THAT WHEN MANAGEMENT AND ADMINISTRATION EXPENSES AS PER PROFIT AND LOSS ACCOUNT ARE REDUCED FROM THE CORPUS OF RS. 21.6 0 CRORES, THE NET FIGURE OF RS.20,95,19,760/- BECOMES THE INVESTIBLE FUND S FOR THE PURPOSE OF REGULATION 12(D)(I). THEREFORE, CONSIDERIN G THE INVESTMENT OF RS.14,02,99,580/- IN THE PRESCRIBED -VENTURE CAPIT AL UNDERTAKING (OTHER THAN QUOTED EQUITY SHARES), THE INVESTMENT, PE RCENTAGE ARRIVED AT IS 66.96%, WHICH MEETS THE REQUIREMENTS OF REGULA TION 12 (D)(I). 5.1 IT IS FURTHER NOTICED THAT AS PER THE EXPLANAT ION GIVEN BELOW SEBI REGULATION 12(D), THE INVESTMENT CONDITIONS AN D RESTRICTIONS STIPULATED IN CLAUSE (D) OF REGULATION 12 WAS TO BE ACHIEVED BY THE VENTURE CAPITAL FUND BY THE END OF ITS LIFE CYCLE, A ND CONSIDERING REGULATION 12(E) READ WITH CLAUSE 2.03 OF THE TRUST DEED, THE ASSESSEE HAS A 10 YEARS LIFE CYCLE. THEREFORE, THE PRESCRIBED PERCENTAGE OF 66.67% COULD BE ACHIEVED DURING ANY YEAR DURING THIS LIFE CYCLE. ACCORDINGLY, THE ASSESSEE HAS GIVEN A CHART IN ITS S UBMISSION (PAGE NO.12OF THIS ORDER) WHEREAS WHEN THE MANAGEMENT AND ADMINISTRATION EXPENSES ARE REDUCED FROM THE CORPUS FIGURE THAN THE ELIGIBLE INVESTMENTS IN VENTURE CAPITAL UNDERTAKING HAVE ACHIEVED THE STIPULATED MINIMUM PERCENTAGE O F 66.67% IN TWO OTHER YEARS APART FROM THE CURRENT ASSESSMENT YEAR I.E. DURING F.Y.20 06-2007 AND 2007-2008. UNDER THE CIRCUMSTANCES, THE APPELLANT'S CONTENTION THAT THE STIPULATED CONDITION UNDER SEBI REGULATION 12(D ) FOR BEING ELIGIBLE TO EXEMPTION UNDER 10(23FB) OF THE INCOME TAX ACT H AVE BEEN FULFILLED, IS ACCEPTABLE, AND THE ASSESSEE IS ENTIT LED TO EXEMPTION U/S. 10(23FB). 7 5.2 SO FAR AS THE APPELLATE ORDER FOR ASSESSMENT Y EAR 2004-2005 PASSED BY THE C.I.T.(A) IS CONCERNED THE APPELLANT HAS STATED AS UNDER: 'HERE WE WOULD LIKE TO HIGHLIGHT THE FACT THAT THE ORDER PASSED BY THE LD.CIT(A) IN THE CASE OF THE ASSESSEE FOR A.Y.2004- 05 ON WHICH THE AO HAS PLACED RELIANCE ON, IS ERRONEOUS TO THE EXTENT THAT , THE TERM 'INVESTIBLE FUNDS'' HAS NOT BEEN EXAMINED AND WRONGLY CONSIDERED TO MEAN THE CORPUS, WHEREAS, IN FACT THE TERM 'INVESTIBLE FUNDS '' HAVE BEEN DEFINED UNDER SEBI REGULATIONS IN REGULATION (HH) AS 'INVES TIBLE FUNDS' MEANS CORPUS OF THE FUND NET OF EXPENDITURE FOR ADMINISTR ATION AND MANAGEMENT OF THE FUND;' AND TAKING INTO CONSIDERAT ION THE SAME IF THE WORKING IS MADE AS HAS BEEN DONE HEREIN ABOVE, IT C AN BE SEEN THAT THE ASSESSES HAD ALREADY ACHIEVED THE CONDITIONS PRESCR IBED.' 5.3 ON GOING THROUGH THE APPELLATE ORDER NO.PN/CIT( A)- II/DCIT.CIR.6/773/2006-07, OF THE CIT(A)-II, DATED 02-11-2007 IT IS NOTICED THAT THE APPELLANT'S CONTENTION IS CORRECT. IN THE CIT(A)'S ORDER ALSO THE PRESCRIBED PERCENTAGE OF 66.67% WAS CALCUL ATED ON THE CORPUS AMOUNT OF RS.21.60 CRORES, AS AGAINST THE CALCULATI ON TO BE MADE ON THE 'INVESTIBLE FUNDS', FOR WHICH ADMINISTRATION AN D MANAGEMENT EXPENDITURE WAS TO BE REDUCED FROM THE CORPUS. HOWE VER, IN ASSESSMENT YEAR 2004-2005 EVEN AFTER THIS CALCULATI ON IS MADE ON INVESTIBLE FUNDS, THE PERCENTAGE COMES TO ONLY 35.1 5% AS ALSO SEEN BY THE CHART SUBMITTED BY THE APPELLANT IN ITS SUBMISS ION. HOWEVER, THE PRESCRIBED PERCENTAGE HAS BEEN ACHIEVED IN ASSESSME NT YEAR 2005- 2006 WHICH IS UNDER APPEAL AS ALSO IN TWO SUBSEQUEN T YEARS AS MENTIONED ABOVE. IN THE RESULT, THE GROUNDS OF APPEAL (REVISED) NOS. 1 TO 4 ARE ALLOWED. 5.4 SO FAR AS THE OTHER GROUNDS OF APPEAL NOS. 5 AND 6 ARE CONCERNED, AS MENTIONED ABOVE THE ASSESSING OFFICER HAD REJECTED THE CLAIM OF DEDUCTION U/S 10(34; AMOUNTING TO RS.8,53, 398/- IN RESPECT OF DIVIDEND INCOME. IT IS ALSO MENTIONED BY THE ASS ESSING OFFICER THAT THE ASSESSEE HAS SHOWN INCOME BY WAY OF INTEREST FR OM BANK DEPOSITS WHICH, DOES NOT FORM PART OF THE SCHEME FOR ENJOYING THE BENEFITS U/S 10(23FB). THIS ISSUE WAS DEALT WITH IN DETAIL BY THE CIT(A)-II, PUNE IN THE APPELLATE ORDER DATED 02-11- 2007 FOR ASSESSMENT YEAR 2004-2005 IN PARA 4 WHEREAS, A FINDI NG WAS GIVEN THAT IN VIEW OF THE AMENDED PROVISIONS OF SECTION 1 0(23FB) INTRODUCED W.E.F. 01-04-2001 WHICH EXEMPTS 'ANY INCOME' OF A VENTURE CAPITAL COMPANY OR VENTURE CAPITAL FUND SET UP TO RAISE FUN DS FOR INVESTMENT IN A 'VENTURE CAPITAL UNDERTAKING, ANY IN COME OF A VENTURE CAPITAL FUND WAS EXEMPT SUBJECT TO THE PRES CRIBED CONDITIONS. FOLLOWING THIS DECISION OF CIT(A)-II FOR THE ASSESSMENT YEAR 2004-2005, IT IS HELD THAT THE EXEMPTION U/S.1 0(23FB) IS AVAILABLE ON ANY INCOME OF THE ASSESSEE, BE IT INTE REST, DIVIDEND, ETC. THE GROUNDS OF APPEAL NOS. 5 AND 6 ARE, THEREFORE, ALLOWED.' 3.1 AS COULD BE SEEN FROM THE ABOVE OBSERVATIONS O F THE CIT(A)-II, PUNE FOR THE ASSESSMENT .YEAR 2005-06, THE PRESCRIB ED PERCENTAGE OF 66.67% OF THE INVESTIBLE FUNDS HAS BEEN ACHIEVED DU RING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2005-06 AND TH EREFORE, THE CONDITION LAID DOWN UNDER REGULATION 12(D)(I) OF TH E SEBI REGULATIONS IS ALSO SATISFIED IN THE CASE OF THE APPELLANT. IN VIEW OF THIS CATEGORICAL FINDING OF THE CIT(A)-II, PUNE FOR THE IMMEDIATELY SUCCEEDING YEAR AND ALSO CONSIDERING THE FACTUAL POSITION THAT AFTER EX CLUDING THE EXPENDITURE FOR ADMINISTRATION AND MANAGEMENT OF TH E FUNDS, THE APPELLANT ACHIEVED THE PRESCRIBED LIMIT OF 66.67% O F INVESTIBLE FUNDS DURING THE LIFE CYCLE OF SEVEN YEARS OR TEN YEARS, IT IS HE'D THAT THE 8 APPELLANT IS ELIGIBLE FOR EXEMPTION U/S.10(23FB) OF THE I. T. ACT. ONCE THE APPELLANT HAS COMPLIED WITH ALL THE CONDITIONS PRESCRIBED UNDER SEC.10(23FB), 'ANY 'INCOME' OF THE APPELLANT VENTUR E CAPITAL FUND SET UP TO RAISE FUNDS FOR INVESTMENT IS ELIGIBLE FOR TH E ALLOWANCE OF EXEMPTION UNDER SEC. 10(23FB) AS OBSERVED BY THE ITAT, PANE IN APPELLANT'S OWN CASE FOR THE A,Y. 2005-06 IN THE OR DER DATED 30-11- 2009 AND FOR THE A.Y. 2006-07 VIDE ORDER DATED 30,0 9.2009. IN VIEW OF THE ORDERS OF THE ITAT, PUNE FOR THE A.Y. 2005-06 AN D A.Y. 2006-07, THE ASSESSING OFFICER IS NOT JUSTIFIED IN DENYING THE E XEMPTION IN RESPECT OF INTEREST INCOME OF RS.96,61,421/- EARNED BY THE APPELL ANT DURING THE YEAR. THE ASSESSING OFFICER IS DIRECTED TO GRANT EXE MPTION U/S. 10(23FB) IN RESPECT OF THE SAID INTEREST INCOME.' FROM THE ABOVE REFERRED DECISIONS OF THE ITAT & CIT( A) IN THE APPELLANT'S OWN CASE FOR THE PRECEDING AND SUCCEEDING ASSESSMENT YEARS, IT CLEARLY EMERGES THAT THE INVESTMENT CONDITIONS AND RESTRICTIONS STI PULATED THEREIN COULD BE ACHIEVED BY THE VENTURE CAPITAL FUND BY THE END OF ITS LIFE CYCLE AND THE SAME WAS ACHIEVED IN CASE OF THE APPELLANT IN THE CURRENT ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN DENYING THE EXEMPTION C LAIMED BY THE APPELLANT U/S. 10(23FB) ON THE GROUND THAT APPELLAN T DID NOT ACHIEVE THE PRESCRIBED LIMIT OF 66.57% OF INVESTIBLE FUNDS. 3.1 AS FAR AS THE QUESTION OF INTERPRETATION OF TE RM 'ANY INCOME' IS CONCERNED, THE ASSESSING OFFICER HAD REJECTED THE CLAIM OF DEDUCTION UNDER, SEC. .10 (34) AND/OR UNDER SEC. 10(23FB) IN RESP ECT OF DIVIDEND INCOME AND INCOME BY WAY OF INTEREST FROM BANK DEPOSITS ON THE GROUND THAT THE SAME DOES NOT FORM PART OF THE SCHEME FOR AVAILING THE BENEFITS UNDER SEC. 10(23FB). THIS ISSUE WAS ALREADY DEALT BY THE CIT(A)-II, PUNE IN THE APPELLATE ORDER DATED 02-11-2007 FOR A.Y. 20 04-05 WHEREIN AT PARA 4, A FINDING WAS GIVEN THAT AS PER THE AMENDED PROVISIONS OF SEC.10(23FB) INTRODUCED W.E.F. 01-04-2001, ANY INC OME OF A VENTURE CAPITAL COMPANY OR VENTURE CAPITAL FUND SET UP TO RAISE', FUNDS FOR INVESTMENT IN A VENTURE CAPITAL UNDERTAKING IS EXEM PT SUBJECT TO THE PRESCRIBED CONDITIONS. IN VIEW OF THE AMENDED PROVISION S OF SEC. 10(23FB), ONCE THE APPELLANT IS HELD TO HAVE COMPLIED WI TH ALL THE CONDITIONS PRESCRIBED UNDER SEC. 10(23FB) AS DISCUSSED HE REINABOVE, 'ANY INCOME' OF THE APPELLANT VENTURE CAPITAL FUND SET UP TO R AISE FUNDS FOR INVESTMENT IN A VENTURE CAPITAL UNDERTAKING IS ELIGIBLE FOR EXEMPTION UNDER SEC. 10(23FB). IN FACT, SIMILAR VIEW WAS TAKEN BY THE CIT(A)-II, PUNE IN APPELLANT'S OWN CASE FOR THE A.Y. 2006-07 VIDE HIS ORDER DATED 30 TH APRIL 2009, WHICH WAS ENDORSED BY THE ITAT, PUNE IN ITS ORDER IN ITA NO.836/PN/2009 DATED 30-09-2009. IN VIEW OF THE OR DER OF THE ITAT, PUNE FOR THE A.Y. 2006-07, THE ASSESSING OFFICER IS NOT JUSTI FIED IN DENYING THE EXEMPTION IN RESPECT OF DIVIDEND (RS.8,53,398/-) AND NET INTEREST INCOME (RS.28,28,438/- AFTER SET OFF OF BUSINESS LOSS EARNED BY THE APPELLANT DURING THE YEAR. IN THE RESULT, THE ISSUES REMITTED BY THE HONBLE ITAT , PUNE, BY ITS ORDER DATED 30-11-2009 IN ITA NO.338/PN/2009 FOR THE YEAR UNDER CONSIDERATION ARE DECIDED IN FAVOUR OF THE APPELLANT. 5. AGGRIEVED WITH SUCH ORDER OF CIT(A) THE REVENUE IS IN APPEAL BEFORE WITH THE FOLLOWING GROUNDS : 9 1. THE ORDER OF THE CIT(A) IS CONTRARY TO LAW AND FA CTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS ENT ITLED TO DEDUCTION U/S.10(23FB) OF THE INCOME TAX ACT, 1961. 3. THE CIT(A) ERRED IN HOLDING THAT THE ASSESSEE HAD MA DE INVESTMENTS IN VENTURE CAPITAL UNDERTAKINGS TO THE EXTENT REQUIR ED AS PER THE SEBI REGULATIONS AND IN FAILING TO APPRECIATE THAT THE IN VESTMENT PERCENTAGE WAS BELOW THE PRESCRIBED LIMIT. 4. THE CIT(A) ERRED IN HOLDING THAT U/S.10(23FB) AN Y INCOME OF THE ASSESSEE INCLUDING INTEREST INCOME UNDER THE HEAD INCOM E FROM OTHER SOURCES IS EXEMPT. 5. THE CIT(A) ERRED IN FAILING TO APPRECIATE THE LE GISLATIVE INTENT OF INSERTING CLAUSE (23FB) IN SECTION 10 WHICH WAS TO PROV IDE THAT ONLY THE INCOME FROM ANY INVESTMENT MADE IN VENTURE CAPITAL U NDERTAKING WOULD NOT BE INCLUDED IN COMPUTING THE TOTAL INCOME. THE ABO VE LEGISLATIVE INTENT CLEARLY EMERGES FROM THE FINANCE BILL, 2000. 6. THE CIT(A) ERRED IN HOLDING THAT EXEMPTION U/S.10 (23FB) IS AVAILABLE ON ANY INCOME OF THE ASSESSEE INCLUDING INTEREST, LONG T ERM CAPITAL GAINS AND DIVIDEND. 7. FOR THESE AND SUCH OTHER REASONS AS MAY BE URGED AT T HE TIME OF THE HEARING, THE ORDER OF THE CIT(A) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 6. THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING SUBMITTED THAT THE GROUNDS FILED BY THE REVENUE ARE IDENTICAL TO T HE GROUNDS FILED EARLIER BEFORE THE TRIBUNAL VIDE ITA NO.338/PN/2009. HE SU BMITTED THAT THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF THE CIT(A) WITH SPECIFIC DIRECTION TO DECIDE THE ISSUE OF ENTITLEMENT OF THE ASSESSEE TO DEDUCTION U/S.10(23FB). THEREFORE, ONLY GROUND OF APPEAL NO. 3 HAS TO BE DECIDED AND ALL OTHER GROUNDS ARE TO BE TREATED AS INFRUCTUOUS SINCE THEY DID NOT ARISE OUT OF THE DIRECTION OF THE TRIBUNAL. 6.1 SO FAR AS GROUNDS OF APPEAL NO.3 IS CONCERNED H E SUBMITTED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004-05 AS WELL AS 2006-07. SINCE THE LD.CIT(A) WHILE DECIDING THE ISSUE HAS FOLLOWED THE DECISION OF THE 10 TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07, T HEREFORE, THE ORDER OF THE CIT(A) HAS TO BE UPHELD AND THE GROUND RAISED BY TH E REVENUE HAS TO BE DISMISSED. 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE TRIBUNAL VIDE ITA NO.338/PN/2009 ORDER DATED 30-11-2009 FOR A.Y. 2005 -06 HAS RESTORED THE ISSUE TO THE FILE OF THE CIT(A) FOR THE LIMITED PUR POSE OF ASCERTAINING THE INVESTIBLE FUNDS. WE FIND THE LD.CIT(A) WHILE ALLO WING THE CLAIM OF THE ASSESSEE HAS FOLLOWED HIS ORDER FOR A.Y. 2006-07 WH ICH HAS BEEN UPHELD BY THE TRIBUNAL VIDE ITA NO.838/PN/2009 ORDER DATED 30 -09-2009. 8.1 WE FURTHER FIND THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ITA NO.354/PN/2011 ORDER DATED 29-06-2012 FOR A.Y. 2004 -05 WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS HELD AS UND ER : 8. FROM THIS IT WAS OBSERVED BY CIT(A) THAT ABOVE OB SERVATION OF CIT(A) FOR A.Y. 2005-06, THE PRESCRIBED PERCENTAGE OF 66.67 % OF THE INVESTIBLE FUNDS HAVE BEEN ACHIEVED DURING THE PREVIOUS YEAR RELEVANT TO THE A.Y. 2005-06 AND THEREFORE, CONDITION LAID DOWN UNDER REGULATION 12(D)(L) OF THE SEBI REGULATIONS IS ALSO SATISFIED IN THE CASE OF THE ASSESSEE. IN VIEW OF THIS CATEGORICAL FINDING OF THE CIT(A) FOR IMMEDIATELY SU CCEEDING YEAR AND ALSO CONSIDERING THE FACTUAL POSITION THAT FURTHER EXCLUDI NG EXPENDITURE FOR ADMINISTRATION AND MANAGEMENT OF THE FUNDS, ASSESSEE HAD ACHIEVED PRESCRIBED LIMIT OF 66.67% OF INVESTIBLE FUNDS DURING LIFECYCLE OF 7 YEARS OR 10 YEAR, IT WAS HELD THAT ASSESSEE IS ELIGIBLE FOR EXEMPT ION U/S.10(23FB) OF THE ACT. ONCE ASSESSEE HAS COMPLIED WITH ALL THE CONDIT IONS PRESCRIBED U/S.10(23FB), ANY INCOME OF THE ASSESSEE'S VENTURE CAPITA L FUND SET UP TO RAISE FUNDS FOR INVESTMENT IS ELIGIBLE FOR ALLOWANCE O F EXEMPTION U/S.10(23FB) AS OBSERVED BY THE ITAT, PUNE, IN ASSESSEE'S OWN CASE FOR A.Y. 2005-06 IN ITS ORDER DATED 30.1.1.2009 AND FOR A.Y. 2006-07 VIDE ORDER DATED 20.09.2009. IN VIEW OF THE ORDERS OF THE ITAT, PUNE, FOR A.Y. 2005-06 AND A.Y 2006-07, IT WAS HELD BY THE CIT(A) THAT THE AO WAS NO T JUSTIFIED IN DENYING EXEMPTION IN RESPECT OF INTEREST INCOME OF RS.96,61,42 I/EARNED BY THE ASSESSEE DURING THE YEAR. THIS FACT HAS NOT BEEN DISPUTED ON BEHALF OF THE 11 REVENUE. IN VIEW OF THE ABOVE, THE CIT(A) WAS JUSTIF IED IN DIRECTING TO GRANT EXEMPTION U/S.10(23FB) IN RESPECT OF THE INTEREST INCO ME, WHICH NEED NO INTERFERENCE FROM OUR SIDE. 8.2 SINCE THE LD.CIT(A) HAS FOLLOWED THE ORDER OF T HE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 AND SINCE FOLL OWING THE ORDER FOR A.Y. 2006-07 THE TRIBUNAL HAS DISMISSED THE APPEAL FILED BY THE REVENUE FOR A.Y. 2004-05, THEREFORE, RESPECTFULLY FOLLOWING THE DECI SION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE PRECEDING AS WELL AS SU CCEEDING ASSESSMENT YEAR WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE. A CCORDINGLY, THE GROUND OF APPEAL NO.3 BY THE REVENUE IS DISMISSED. 8.3 SO FAR AS THE OTHER GROUNDS ARE CONCERNED WE FI ND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THEY HAVE TO BE TREATED AS INFRUCTUOUS SINCE THE ABOVE GROUNDS DO NOT ARISE OU T OF THE ORDER OF THE CIT(A). 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON 26-03-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEM BER PUNE, DATED 26 TH MARCH, 2014 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-II & III, PUNE 4. THE CIT-II & III, PUNE 5. D.R. A BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE 12