ITO 23(1)(4), MUMBAI V. DHFL VENTURE CAPITAL FUND, MUMBAI

ITA 5914/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2298 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 18-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G PANSARI SR
• Assessee Lawyers: SAILEE MEGHRAJ LD
• Keywords: Business income; Revocable transfer; Rule 8D; Set aside
• Section: 143(3); 14A; 63

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.5914/MUM/2017 ( / ASSESSMENT YEAR: 2012-13) INCOME TAX OFFICER - (23)(1)(4) ROOM NO.107, MATRU MANDIR TARDEO ROAD, GRANT ROAD MUMBAI-400 007. / VS. M/S. DHFL VENT U R E CAPITAL FUND GROUND FLOOR, HDIL TOWERS ANANT KANEKAR MARG BANDRA (EAST), MUMBAI-51. ./ ./PAN/GIR NO. AAATD-8633-L ( ! /APPELLANT ) : ( '#! / RESPONDENT ) REVE NUE BY : SHRI D.G. PANSARI-SR. DR ASSESSEE BY : SHRI SAILEE MEGHRAJ- LD. AR / DATE OF HEARING : 21/06/2019 / DATE OF PRONOUNCEMENT : 26/06/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2012-13 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-32, MUMBAI, [CIT(A)], APPEAL NO. CIT(A)-32/IT-37/23(1)(4)/15-16 DATED 29/05/2017 ON FOLLOWING GROUNDS OF APPEAL: - 1. WHETHER IN THE FACTS AND CIRCUMSTANCE OF THE CAS E AND IN LAW, THE LD. CIT(A) WAS CORRECT IN HOLDING THAT THE ASSESSEE IS A PRIVATE SPECIFIC TRUST WITH REVOCABLE TRANSFER AND NOT AN AOP AS HELD BY AO. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, LD. CIT(A) ERRED IN DISREGARDING THE AO'S INVOCATION OF SECTION 164(1) OF THE L.T.ACT, 1961 WITHOUT ASSIGNING ANY REASONS. 2 3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, AND IN LAW, THE LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFI CER AMOUNTING TO RS. 8,31,34,663 UNDER BUSINESS INCOME. 4. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, AND IN LAW, THE LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSE SSING OFFICER OF RS.16,500/- U/S 14A OF THE I. T. ACT, 1961. 5. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A ) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. IN COME TAX OFFICER- 23(1)(4), MUMBAI [AO] U/S 143(3) ON 13/03/2015 WHER EIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.831.51 LACS AFTER CER TAIN ADDITIONS / ADJUSTMENTS AS AGAINST NIL RETURN FILED BY THE ASSESSEE ON 29/09/2012. THE ASSESSEE IS SHOWN TO BE A VENTURE CAPITAL FUND. 2.1 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT THE ASSESSEE WAS A TRUST SET UP UNDER INDIAN TRUST ACT, 1882 VIDE TRUS T DEED DATED 19/08/2005. THE TRUST WAS ALSO SAID TO BE REGISTERED AS VENTURE CAPITAL FUND WITH SECURITIES & EXCHANGE BOARD OF INDIA [SEBI] UNDER SEBI VENTURE CAPITAL FUND [VCF] REGULATIONS, 1996 AND STATED TO BE SPECIFIC REVOCABLE TRUST AS PER C LAUSE 15.1 OF THE TRUST DEED. 2.2 IT WAS POINTED OUT THAT THE INCOME EARNED BY TH E VENTURE CAPITAL FUND FROM INVESTMENTS WAS CREDITED TO VARIOUS CONTRIBUTO RS / MEMBERS ACCOUNT APPEARING IN THE BOOKS OF FUNDS, WHICH IS SUBJECT M ATTER OF ONWARD DISTRIBUTION. IN TERMS OF SECTION 61 & 63 OF THE ACT, THE INCOME EARNED BY THE FUND WAS STATED TO BE DIRECTLY TAXED IN THE HANDS OF THE CON TRIBUTORS / BENEFICIARIES AND NOT IN THE HANDS OF ASSESSEE. IT WAS ALSO SUBMITTED THAT FUND WAS NOT INTO THE BUSINESS OF SALE / PURCHASE OF GOODS AND ACCORDINGL Y, NO BUSINESS INCOMES EXISTS IN ITS CASE. 2.3 HOWEVER, LD. AO NOTED THAT THE RETURN OF INCOME WAS FURNISHED SPECIFYING THE STATUS OF THE ASSESSEE AS ANY OTHER AOP / BOI ARTIFICIAL JURIDICAL PERSON AND THE ASSESSEE REFLECTED NET SURPLUS OF RS.10.81 CRORES FROM 3 INTEREST & DIVIDEND INCOME WHICH WAS STATED TO BE D ISTRIBUTED TO THE BENEFICIARIES AND ACCORDINGLY, THE INCOME WAS REFLE CTED AS NIL. THE SAID FACTS LED THE LD. AO TO FORM AN OPINION THAT INTEREST INC OME WAS NOT EXEMPT FROM TAX AND THE ASSESSEE WAS SHOW-CAUSED AS TO WHY THE CLAIM OF ITS BEING A REVOCABLE TRUST BE REJECTED. 2.4 IN RESPONSE, THE ASSESSEE, VIDE SUBMISSIONS DAT ED 23/01/2015, INTER- ALIA SUBMITTED THAT THE ASSESSEE WAS A REVOCABLE SPECIFIC TRUST TO WHICH THE PROVISIONS OF SECTION 61 TO 63 WERE APPLICABLE AND THEREFORE, THE INCOME WAS TAXABLE IN THE HANDS OF THE INVESTORS. TO SUPPORT T HE SAME, THE ATTENTION WAS DRAWN TO VARIOUS CLAUSES OF THE TRUST DEED AND SAMP LE CONTRIBUTION AGREEMENT MADE BETWEEN ASSESSEE TRUST AND INVESTORS . 2.5 IT WAS FURTHER NOTED THAT THE ASSESSEE TRUST WA S STATED TO BE CREATED AS PRIVATE TRUST THROUGH TRUST DEED DATED 19/08/2005 B Y ITS TRUSTEES NAMELY M/S DHFL VENTURES TRUSTEES CO. PVT. LTD. [DHFL]. SUBSEQUENT TO ITS CREATION, THE ASSESSEE, VIDE CONTRIBUTION AGREEMENT DATED 24/03/2 006, ENTERED INTO ACTIVITY OF PROVIDING FINANCIAL ASSISTANCE TO INVESTEE UNDER TAKING BY SUBSCRIBING TO EQUITY, QUASI-EQUITY, EQUITY RELATED INSTRUMENTS IN ANY OTHER MANNER. AS PER THE TRUST DEED, DHFL IS APPOINTED AS SETTLOR AS WELL AS TRUSTEE ALSO AN D THEREFORE, THE TRUST WAS CREATED WITH SOLE MOTIVE F OR BENEFIT OF THE SETTLOR / CONTRIBUTOR AS AGAINST THE BASIC PREMISE THAT TRUST HAS THREE CONSTITUENTS I.E. SETTLER, CONTRIBUTOR AND BENEFICIARY AND ALL THREE CONSTITUENTS ARE INDEPENDENT AND DISTINCT. 2.6 IN THE ABOVE BACKGROUND, LD. AO PROCEEDED TO CA TEGORIZE THE ASSESSEE AS AN ASSOCIATION OF PERSON [AOP] AND ACCORDINGLY, HELD THAT THE INCOME WAS LIABLE TO BE TAXED IN ITS HANDS IN TERMS OF SECTION 161 AND THE PROVISIONS OF SECTION 61 TO 63 WERE NOT APPLICABLE, AS CLAIMED BY THE ASSESSEE. FINALLY, THE NET SURPLUS EARNED BY THE ASSESSEE HAS BEEN HELD TO BE CHARGEABLE TO TAX. 4 2.7 PROCEEDING FURTHER, SINCE THE ASSESSEE EARNED E XEMPT DIVIDEND INCOME OF RS.2.50 CRORES, LD. AO, APPLYING RULE 8D, WORKED OUT EXPENSE DISALLOWANCE U/R 8D(2)(III) AT RS.16,550/-. 3. AGGRIEVED, THE ASSESSEE AGITATED THE SAME BEFORE LD. FIRST APPELLATE AUTHORITY WITH SUCCESS VIDE IMPUGNED ORDER DATED 29 /05/2017, WHEREIN RELYING UPON THIS TRIBUNALS ORDER IN ASSESSEES OWN CASE F OR AYS 2008-09 TO 2010- 11, THE MATTER WAS ADJUDICATED IN ASSESSEES FAVOR AND BOTH THE ADDITIONS WERE DELETED. THE RELEVANT EXTRACT OF THE TRIBUNAL ORDER HAS ALREADY BEEN REPRODUCED IN THE IMPUGNED ORDER. AGGRIEVED, THE RE VENUE IS IN FURTHER APPEAL BEFORE US. 4. IN THE ABOVE FACTUAL MATRIX, LD. AUTHORIZED REPR ESENTATIVE FOR ASSESSEE [AR], AT THE OUTSET, SUBMITTED THAT THE CASE WAS SQ UARELY COVERED BY THE EARLIER ORDERS OF TRIBUNAL IN ASSESSEES OWN CASE F OR AYS 2008-09 TO 2010-11, ITA NOS. 3263/M/2012, 3179/M/2014 & 734/M/2015 ORDE R DATED 28/04/2017, A COPY OF WHICH HAS BEEN PLACED ON RECORD. IT HAS FUR THER BEEN SUBMITTED THAT FOLLOWING THE SAME, SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL FOR AY 2011- 12 IN ITA NO. 4099/M/2015 ORDER DATED 30/06/2017, A COPY OF WHICH HAS ALSO BEEN PLACED ON RECORD. THE LD. DR COULD NOT CONTROV ERT THE AFORESAID FACT. NOTHING HAS BEEN BROUGHT ON RECORD TO ESTABLISH ANY DISTINGUISHING FEATURE IN THE FACTUAL MATRIX OR TO SUBMIT THAT THE AFORESAID RULINGS OF THE TRIBUNAL ARE NOT APPLICABLE FOR THE IMPUGNED AY. 5. IN VIEW OF THE ADMITTED POSITION, NO INFIRMITY C OULD BE FOUND IN THE IMPUGNED ORDER. RESPECTFULLY FOLLOWING THE BINDING JUDICIAL PRECEDENT IN THE SHAPE OF TRIBUNALS ORDER IN ASSESSEES OWN CASE FO R EARLIER YEARS, WE CONFIRM THE IMPUGNED ORDER AND DISMISS THE REVENUES APPEAL . 6. THE APPEAL STANDS DISMISSED. 5 ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JUNE, 2019. SD/- SD/- (MAHAVIR SINGH) ( MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 26/06/2019 SR.PS, JAISY VARGHESE !'#$ # / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT 3. * ( ) / THE CIT(A) 4. * / CIT CONCERNED 5. '% , , / DR, ITAT, MUMBAI 6. ./ / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.