HDFC PROPERTY FUND, MUMBAI V. INCOME TAX OFFICER 17(1)(5), MUMBAI

ITA 7472/MUM/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6800 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2014-2015
• Appeal Filed On: 29-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P MEENA
• Assessee Lawyers: P J PARDIWALLA
• Keywords: Benefit of exemption; Capital Gains
• Section: 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ' A ' BENCH, MUMBAI BEFORE SHRI G.S. PANNU , VICE PRESIDENT AND SHRI RAVISH SOOD , JUDICIAL MEMBER ITA NO. 7472 /MUM/ 2017 (ASSESSMENT YEAR: 2014 - 15 ) M/S. HDFC PROPERTY FUND 165 - 166, BACKBAY RECLAMATION H T PAREKH MARG, CHRUCHGATE MUMBAI 400020 VS. INCOME TAX OFFICER - 17(1)(5) ROOM NO. 117, 1ST FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN AAATH4956Q APPELLANT RESPONDENT APPELLANT BY: SHRI P.J. PARDIWALLA & SHRI MA DHUR AGRAWAL RESPONDENT BY: SHRI R.P. MEENA DATE OF HEARING: 1 1 .0 1 .201 9 DATE OF PRONOUNCEMENT: 28 . 0 2 .201 9 O R D E R PER G.S. PANNU , VICE PRESIDENT THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) - 28 , MUMBAI DATED 09 . 10 .201 7 FOR A.Y. 2014 - 15 . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) HEREINAFTER REFERRED TO AS 'THE [CIT(A)'] ERRED IN UPHOLDING THE ACTION OF THE LEARNED INCOME TAX OFFICER 17(1)(5), MUMBAI (HEREINAFTER REFERRED AS 'THE ASSESSING OFFI CER') IN BRINGING TO TAX A SUM OF RS. 264,39,31,0807 - [COMPRISING OF LONG TERM CAPITAL GAINS, DIVIDEND INCOME AND INTEREST INCOME FROM VCUS THAT WERE CLAIMED EXEMPT UNDER SECTION 10(23FB) OF THE INCOME TAX ACT, 1961 (THE ACT)] AS INCOME OF THE APPELLANT. 2 . THE CIT(A) ERRED IN EXCEEDING HIS JURISDICTION IN ALLEGING THAT THE APPELLANT HAS VIOLATED THE SECURITIES AND EXCHANGE BOARD OF INDIA (VENTURE CAPITAL FUND) REGULATIONS, 1996 ('THE VCF REGULATIONS') TO DISALLOW THE CLAIM FOR EXEMPTION UNDER SECTION 10(23FB) OF THE ACT. THE CIT(A) FAILED TO APPRECIATE THAT IT IS NOT WITHIN THE DOMAIN OF THE INCOME - TAX DEPARTMENT TO DETERMINE THE INFRACTION OF OTHER LAWS. ITA NO. 7472 /MUM/ 2017 M/S. HDFC PROPERTY FUND / INCOME TAX OFFICER - 17(1)(5) 2 3. WITHOUT PREJUDICE TO WHAT IS STATED ABOVE, THE APPELLANT SUBMITS THAT THE CIT(A) FAILED TO APPR ECIATE THAT FOR AVAILING EXEMPTION UNDER SECTION 10(23FB) OF THE ACT WHAT IS RELEVANT IS COMPLIANCE OF THE PROVISIONS OF THE ACT AND NOT THE PROVISIONS OF THE VCF REGULATIONS. 4. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER THAT THE A PPELLANT'S ACTION HAS RESULTED IN FOLLOWING INFRACTION OF THE VCF REGULATIONS - (A) THE CIT(A) ERRED IN OBSERVING THAT THE CLAUSE IN THE APPELLANT'S TRUST DEED DEALING WITH 'TEMPORARY INVESTMENTS' IS CONTRARY TO THE VCF REGULATIONS. THE APPELLANT SUBMITS THAT THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) FAILED TO APPRECIATE THAT THE TEMPORARY INVESTMENT REPRESENTS DEPLOYMENT OF FUNDS THAT ARE PENDING EITHER FOR INVESTMENT IN VENTURE CAPITAL UNDERTAKINGS (VCUS) OR TO MEET FUTURE EXPENSES OR PENDING DIS TRIBUTION TO THE CONTRIBUTORS AND SUCH TEMPORARY DEPLOYMENT IS GENERAL TRADE PRACTICE AND ACCEPTED BY SEBI (WHICH HAS ALSO APPROVED APPELLANT'S TRUST DEED WHILE GRANTING REGISTRATION). (B) THE CIT(A) ERRED IN OBSERVING THAT THE APPELLANT HAS ACCEPTED T H AT ITS INVESTMENTS IN LIQUID MUTUAL FUNDS HAS RESULTED IN VIOLATION OF THE VCF REGULATIONS. THE APPELLANT REITERATES THAT TEMPORARY DEPLOYMENT OF FUNDS IN MUTUAL FUNDS IS ACCEPTED BY SEBI AND THE APPELLANT HAS NOT MADE ANY VIOLATION OF THE VCF REGULATIONS AT ALL. (C) THE APPELLANT SUBMITS THAT THE CIT(A) ERRED IN OBSERVING THAT ITS ACTIVITY OF DEPLOYING FUNDS IN MUTUAL FUNDS IS A SYSTEMIC AND CONTINUOUS ACTIVITY OF A SUBSTANTIAL AMOUNT. THE APPELLANT SUBMITS THAT THE CIT(A) FAILED TO APPRECIA TE THAT IT HAD MADE TEMPORARY DEPLOYMENT OF ITS FUNDS IN MUTUAL FUNDS PENDING UTILIZATION AND THE SAID ACTIVITY WAS NEITHER CONTINUOUS NOR SUBSTANTIAL CONSIDERING ITS FUND SIZE. 5. THE APPELLANT SUBMITS THAT THE CIT(A) (APPEALS) FAILED TO APPRECIATE THAT THE APPELLANT HAS MADE SUBMISSIONS RE: NEGATIVE LIST IN THE VCF REGULATIONS ONLY TO HIGHLIGHT THAT ITS INVESTMENTS IN VCUS ARE NOT VIOLATIVE OF SUCH REGULATIONS AND THE CIT(A) ERRED IN MAKING OBSERVATIONS AT PARA 6.3.2 OF HIS APPELLATE ORDER (THAT IT WAS A N ATTEMPT TO MISLEAD THE APPELLATE AUTHORITY) AND THE APPELLANT STRONGLY OBJECTS TO THE SAME. 6. THE APPELLANT SUBMITS THAT AS THE BENEFICIARIES (INVESTORS) HAD INCLUDED THE INCOME FROM THE FUND (THE APPELLANT) IN THEIR INDIVIDUAL RETURNS AND THE SAME WOU LD HAVE BEEN ASSESSED IN THEIR HANDS, SUCH INCOME CANNOT BE ASSESSED IN APPELLANT'S HANDS AS THE SAME WOULD AMOUNT TO DOUBLE TAXATION OF THE SAME INCOME . ITA NO. 7472 /MUM/ 2017 M/S. HDFC PROPERTY FUND / INCOME TAX OFFICER - 17(1)(5) 3 7. WITHOUT PREJUDICE, THE APPELLANT SUBMITS THAT IN THE EVENT THE BENEFIT OF EXEMPTION UNDER SECTION 10(23FB) OF THE ACT WERE TO BE DENIED TO IT, A SUITABLE DIRECTION BE GIVEN THAT THE BENEFIT OF TAXES PAID BY THE CONTRIBUTORS ON THE SAME INCOME BE ALLOWED TO THE APPELLANT. 8. WITHOUT PREJUDICE THE APPELLANT SUBMITS THAT THE CIT(A) FAILED TO APPRECIATE TH E FACT THAT EVEN IF EXEMPTION UNDER SECTION 10(23FB) OF THE ACT IS DENIED, THE INCOME OF THE APPELLANT OUGHT TO HAVE BEEN COMPUTED AS PER OTHER PROVISIONS OF THE ACT AND NOT UNDER HEAD 'INCOME FROM OTHER SOURCES.' 9. WITHOUT PREJUDICE TO WHAT HAS BEEN STA TED ABOVE, THE APPELLANT SUBMITS THAT THE CIT(A) FAILED TO APPRECIATE THE FACT THAT INCOME FROM MUTUAL FUNDS OUGHT TO HAVE BEEN GRANTED EXEMPTION UNDER SECTION 10(35) OF THE ACT. 10. WITHOUT PREJUDICE TO WHAT HAS BEEN STATED ABOVE, THE APPELLANT SUBMITS TH AT THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN HOLDING THAT THE APPELLANT IN NOT A 'PERSON' AND HENCE NOT ELIGIBLE TO CLAIM EXEMPTION UNDER SECTION 10(23FB) OF THE ACT. THE APPELLANT SUBMITS THAT IN THE EVENT THE APPELLANT IS HELD NOT TO BE A 'PERSON' NO ASSESSMENT IS PERMISSIBLE IN CASE OF THE APPELLANT. 11. THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED: A. TO GRANT EXEMPTION TO THE APPELLANT UNDER THE PROVISIONS OF SECTION 10(23FB) OF THE ACT AND TO DELE TE ADDITION OF A SUM OF RS. 264,39,31,082/ - ; B. WITHOUT PREJUDICE TO WHAT HAS BEEN S TATED ABOVE, IF CONTENTION AT ( A) ABOVE IS NOT ACCEPTED, TO DIRECT THE ASSESSING OFFICE R TO TAX INCOME AS P ER NORMAL PROVISIONS OF THE ACT AND NOT UNDER THE HEAD ' INCOME FROM OTHER SOURCES' ; C. WITHOUT PREJUDICE TO WHAT HAS BEEN STATED ABOVE, IF CONTENTION AT (A) ABOVE IS NOT ACCEPTED, TO GIVE DIRECTION FOR GIVING BENEFIT FOR TAXES PAID BY THE CONTRIBUTORS ON THE SAME INCOME TO THE APPELLANT; AND TO MODIFY THE ASSESSMENT IN ACCORDANCE WITH THE PRO VISIONS OF THE ACT. 3. BRIEFLY PUT , THE RELEVANT FACTS ARE THAT , THE ASSESSEE IS A TRUST ESTABLISHED UNDER INDIAN TRUST ACT, 1882 IN TERMS OF TRUST DEED DATED 06.11.2004, WHICH HAS BEEN SETTLED BY HOUSING DEVELOPMENT FIN ANCE CORPORATION LTD. THE SETTL O R, I.E. HOUSING DEVELOPMENT FINANC E CORPORATION LTD. HAS IDENTIFIED INVESTMENT OPPORTUNITIES IN VARIOUS HIGH GROWTH SECTORS INCLUDING REAL ESTATE SECTOR IN INDIA AND IN ORDER TO POOL ITA NO. 7472 /MUM/ 2017 M/S. HDFC PROPERTY FUND / INCOME TAX OFFICER - 17(1)(5) 4 TOGETHER THE RESOURCES AND FINANCE FROM I NSTITUTIONS AND OTHER INVESTORS FOR THE PURPOSE OF FU NDING SUCH INVESTMENT OPPORTUNITIES, THE ASSESSEE WAS ESTABLISHE D AS A VENTURE CAPITAL FUND (HEREINAFTER REFERRED TO AS VCF). FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE VCF EARNED INCOME FROM INVESTMENTS IN VENTURE CAPITAL UNDERTAKINGS (VCU S ) , WHICH WAS CLA IMED AS EXEMPT UNDER SECTION 1 0(23FB) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) AND THE NET TAXABLE INCOME WAS RETURNED AT ` 19,5 8,410/ - WHICH COMPRISE D OF NON - VC U RELATED INCOMES , BEING INTEREST ON FIXED DEPOSITS WITH BANK AND ON INCOME TAX REFUND. IN THE ASSESSMENT FINALISED BY THE ASSESSING OFFICER, THE TOTAL INCOME HAS BEEN ASSESSED AT ` 26 4 ,5 8 ,8 9 , 4 1 0/ - , AND I N DETERMINING SUCH INCOME THE ASSESSING OFFICER DENIED THE EXEMPTION CLAIMED UNDER SECTION 10(23 FB) OF THE ACT AS WELL AS EXEMP TION CLAIMED UNDER SECTION 10(35) OF THE ACT ON DIVIDEND INCOME EARNED FROM THE UNITS O F MUTUAL FUNDS AS WELL AS ON EQUITY SHARES OF A VCU. THIS ASSESSMENT WAS CHALLENGED IN APP EAL BEFORE THE LEARNED CIT(A) WHO HAS CONFIRMED THE SAME AND ACCORDINGLY THE ASSESSEE IS IN APPEAL BEFORE US ON THE AFORESTATED G ROUNDS OF APPEAL. 4. IN THIS BACKGROUND, IF ONE IS TO PERUSE THE VARIOUS G ROUNDS RAISED BEFORE US, THE SUBSTANTIVE GRIEVANCE OF THE ASSESSEE IS AGAINST THE ACTION OF THE INCOME - T AX A UTHORITIES IN DENYING THE CLAIM OF EXEMPTION UNDER SECTION 10(23FB) OF THE ACT. THEREFORE, WE PROCEED TO ADJUDICATE THE SAID ISSUE HEREINAFTER. AS NOTED BY US EARLIER THE ASSESSEE IS A VENTURE CAPITAL FUND WHICH HAD CLAIMED EXEMPTION UNDER SECTION 10(23FB) OF THE ACT. BEFORE PROCEEDING TO ADJUDICATE THE RIVAL STAND S ON THE CLAIM FOR EXEMPTION UNDER SECTION 10(23FB) OF THE ACT, IT IS APPROPRIATE TO REFER TO THE RELEVANT PROVISIONS OF THE ACT WHICH HAVE A BEARING ON THE ISSUE. 5. IN THIS CONTEXT , WE MAY REPRODUCE HEREINAFTER THE PROVISIONS OF SECTION 10(23FB) OF THE ACT , AS IT STOOD FOR THE ASSESSMENT YEAR UNDER CONSIDERATION BEFORE US. (23FB) ANY INCOME OF A VENTURE CAPITAL COMPANY OR VENTURE CAPITAL F UND FROM INVESTMENT IN A VENTURE CAPITAL UNDERTAKING . ITA NO. 7472 /MUM/ 2017 M/S. HDFC PROPERTY FUND / INCOME TAX OFFICER - 17(1)(5) 5 EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE, (A ) 'VENTURE CAPITAL COMPANY' MEANS A COMPANY WHICH (A) HAS BEEN GRANTED A CERTIFICATE OF REGISTRATION, BEFORE THE 21 ST DAY OF MAY, 2012, AS A VENTURE CAPITAL FUND AND IS REGULATED UNDER THE SECURITIES AND EXCHANGE BOARD OF INDIA (VENTURE CAPITAL FUNDS) REGULATIONS, 1996 (HEREINAFTER REFERRED TO AS THE VENTURE CAPITAL FUNDS REGULATIONS) MADE UNDER THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992); OR (B) HAS BEEN GRANTED A CERTIFICATE OF REGISTRATION AS VENTURE CAPITAL FUND AS A SUB - CATEGORY OF CATEGORY I ALTERNATIVE INVESTMENT FUND AND IS REGULATED UNDER THE SECURITIES AND EXCHANGE BOARD OF INDIA (ALTERNATIVE INVESTMENT FUNDS) REGULATIONS , 2012 (HEREINAFTER REFERRED TO AS THE ALTERNATIVE INVESTMENT FUNDS REGULATIONS) MADE UNDER THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992), AND WHICH FULFILS THE FOLLOWING CONDITIONS, NAMELY: (I) IT IS NOT LISTED ON A RECOGNISED STOCK E XCHANGE; (II) IT HAS INVESTED NOT LESS THAN TWO - THIRDS OF ITS INVESTIBLE FUNDS IN UNLISTED EQUITY SHARES OR EQUITY LINKED INSTRUMENTS OF VENTURE CAPITAL UNDERTAKING; AND (III) IT HAS NOT INVESTED IN ANY VENTURE CAPITAL UNDERTAKING IN WHICH ITS DIRECTOR OR A SUBSTANTIAL SHAREHOLDER (BEING A BENEFICIAL OWNER OF EQUITY SHARES EXCEEDING TEN PER CENT OF ITS EQUITY SHARE CAPITAL) HOLDS, EITHER INDIVIDUALLY OR COLLECTIVELY, EQUITY SHARES IN EXCESS OF FIFTEEN PER CENT OF THE PAID - UP EQUITY SHARE CAPITAL OF SUCH VEN TURE CAPITAL UNDERTAKING; (B) 'VENTURE CAPITAL FUND' MEANS A FUND (A) OPERATING UNDER A TRUST DEED REGISTERED UNDER THE PROVISIONS OF THE REGISTRATION ACT, 1908 (16 OF 1908), WHICH (I) HAS BEEN GRANTED A CERTIFICATE OF REGISTRATION, BEFORE THE 21 ST DAY OF MAY, 2012, AS A VENTURE CAPITAL FUND AND IS REGULATED UNDER THE VENTURE CAPITAL FUNDS REGULATIONS; OR (II) HAS BEEN GRANTED A CERTIFICATE OF REGISTRATION AS VENTURE CAPITAL FUND AS A SUB - CATEGORY OF CATEGORY I ALTERNATIVE INVESTMENT FUND UNDER THE ALTER NATIVE INVESTMENT FUNDS REGULATIONS AND WHICH FULFILS THE FOLLOWING CONDITIONS, NAMELY: (I) IT HAS INVESTED NOT LESS THAN TWO - THIRDS OF ITS INVESTIBLE FUNDS IN UNLISTED EQUITY SHARES OR EQUITY LINKED INSTRUMENTS OF VENTURE CAPITAL UNDERTAKING; ITA NO. 7472 /MUM/ 2017 M/S. HDFC PROPERTY FUND / INCOME TAX OFFICER - 17(1)(5) 6 (II) IT HAS NOT INVESTED IN ANY VENTURE CAPITAL UNDERTAKING IN WHICH ITS TRUSTEE OR THE SETTLER HOLDS, EITHER INDIVIDUALLY OR COLLECTIVELY, EQUITY SHARES IN EXCESS OF FIFTEEN PER CENT OF THE PAID - UP EQUITY SHARE CAPITAL OF SUCH VENTURE CAPITAL UNDERTAKING; AND (III) THE UNITS, IF ANY, ISSUED BY IT ARE NOT LISTED IN ANY RECOGNISED STOCK EXCHANGE; OR (B) 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); (C) 'VENTURE CAPITAL UNDERTAKING ' MEANS (I) A VENTURE CAPITAL UNDERTAKING AS DEFINED IN CLAUSE (N) OF REGULATION 2 OF THE VENTURE CAPITAL FUNDS REGULATIONS; OR (II) A VENTURE CAPITAL UNDERTAKING AS DEFINED IN CLAUSE (AA) OF SUB - REGULATION (1) OF REGULATION 2 OF THE ALTERNATIVE INVESTMENT FUNDS REGULATIONS; 6. NOTABLY SECTION 10(23FB) OF THE ACT, AS IT IS CONTAINED IN CHAPTER III OF THE ACT , SEEKS TO EXCLUDE THE INCOME PRESCRIBED THEREIN FROM THE TOTAL INCOME OF AN ASSESSEE SUBJECT TO TAX. PERTINENTLY, IT PRESCRIBES FOR EXEMPTION FROM TAX IN RESPECT OF INCOME OF A VENTURE CAPITAL COMPANY OR A VCF REGISTERED WITH SECURITIES AND EXCHANGE BOARD OF INDIA (HEREINAFTER REFERRED TO AS SEBI) . SINCE THE ASSESSEE BEFORE US IS A VENTURE CAPITAL FUND, SHORN OF OTHER DETAILS, WE WOULD EXAMINE THE PROVISIONS OF SECTION 10(23FB) OF THE ACT IN THAT LIGHT ALONE. EXPLANATION (B) OF SECTION 10(23FB) GIVES THE MEANING OF VENTURE CAPITAL FUND TO BE A F UND WHICH (I) OPERATES UNDER A TRUST DEED REGISTERED UNDER THE PROVISIONS OF REGISTRATION ACT, 1 908 ; (II) HAS BEEN GRANTED CERTIFICATE OF REGISTRATION AS A VCF BEFORE 21 ST MAY, 2012; AND , (III) IS REGULATED BY SEBI (VENTURE CAPITAL FUND S ) REGULATIONS, 1996 (HEREIN AFTER R EFERRED TO US VCF REGULATIONS ). 7. SIMULTANEOUSLY , WE MAY ALSO LOOK AT THE PROVISIONS OF SECTION 115U OF THE ACT AS THEY STOOD FOR ASSESSMENT YEAR UNDER CONSIDERATION BEFORE US SINCE , SECTION S 10(23FB) AND 11 5 U OF THE ACT PROVIDE A SCHEMATIC UNDERSTANDING OF THE TAXATION OF CERTAIN INCOMES EARNED IN THE HANDS OF VCF VIS - A - VIS THE TAXATION IN THE HANDS OF THE UNIT HOLDERS OF SUCH VCF . THE PROVISIONS OF SECTION 115U OF THE ACT READ AS UNDER: - ITA NO. 7472 /MUM/ 2017 M/S. HDFC PROPERTY FUND / INCOME TAX OFFICER - 17(1)(5) 7 115U. (1) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, ANY INCOME ACCRUING OR ARISING TO OR RECEIVED BY A PERSON OUT OF INVESTMENTS MADE IN A VENTURE CAPITAL COMPANY OR VENTURE CAPITAL FUND SHALL BE CHARGEABLE TO INCOME - TAX IN THE SAME MANNER AS IF IT WERE THE INCOME ACCRUING OR ARISING TO OR RECEIVED BY SUCH PERSON HAD HE MADE INVESTMENTS DIRECTLY IN THE VENTURE CAPITAL UNDERTAKING. (2) THE PERSON RESPONSIBLE FOR CREDITING OR MAKING PAYMENT OF THE INCOME ON BEHALF OF A VENTURE CAPITAL COMPANY OR A VENTURE CAPITAL FUND AND THE VENTURE CAPITAL COMPANY OR VENTURE CAPITAL FUND SHALL FURNISH, WITHIN SUCH TIME AS MAY BE PRESCRIBED, TO THE PERSON WHO IS LIABLE TO TAX IN RESPECT OF SUCH INCOME AND TO THE PRESCRIBED INCOME - TAX AUTHORITY, A STATEMENT IN THE PRESCRIBED FORM AND VERIFIED IN THE PRESCRIBED MANNER, GIVING DETAILS OF THE NATURE OF THE INCOME PAID OR CREDITED DURING THE PREVIOUS YEAR AND SUCH OTHER RELEVANT DETAILS AS MAY BE PRESCRIBED. (3) THE INCOME PAID OR CREDITED BY THE VEN TURE CAPITAL COMPANY AND THE VENTURE CAPITAL FUND SHALL BE DEEMED TO BE OF THE SAME NATURE AND IN THE SAME PROPORTION IN THE HANDS OF THE PERSON REFERRED TO IN SUB - SECTION (1) AS IT HAD BEEN RECEIVED BY, OR HAD ACCRUED OR ARISEN TO, THE VENTURE CAPITAL COMPANY OR THE VENTURE CAPITAL FUND, AS THE CASE MAY BE, DURING THE PREVIOUS YEAR. (4) THE PROVISIONS OF CHAPTER XII - D OR CHAPTER XII - E OR CHAPTER XVII - B SHALL NOT APPLY TO THE INCOME PAID BY A VENTURE CAPITAL COMPANY OR VENTURE CAPITAL FUND UNDER THIS CHA PTER. (5) THE INCOME ACCRUING OR ARISING TO OR RECEIVED BY THE VENTURE CAPITAL COMPANY OR VENTURE CAPITAL FUND, DURING A PREVIOUS YEAR, FROM INVESTMENTS MADE IN VENTURE CAPITAL UNDERTAKING IF NOT PAID OR CREDITED TO THE PERSON REFERRED TO IN SUB - SECTION (1 ), SHALL BE DEEMED TO HAVE BEEN CREDITED TO THE ACCOUNT OF THE SAID PERSON ON THE LAST DAY OF THE PREVIOUS YEAR IN THE SAME PROPORTION IN WHICH SUCH PERSON WOULD HAVE BEEN ENTITLED TO RECEIVE THE INCOME HAD IT BEEN PAID IN THE PREVIOUS YEAR. EXPLANATION 1 . FOR THE PURPOSES OF THIS CHAPTER, VENTURE CAPITAL COMPANY, VENTURE CAPITAL FUND AND VENTURE CAPITAL UNDERTAKING SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN CLAUSE (23FB) OF SECTION 10. EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT ANY INCOME WHICH HAS BEEN INCLUDED IN TOTAL INCOME OF THE PERSON REFERRED TO IN SUB - SECTION (1) IN A PREVIOUS YEAR, ON ACCOUNT OF IT HAVING ACCRUED OR ARISEN IN THE SAID PREVIOUS YEAR, SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF SUCH PER SON IN THE PREVIOUS YEAR IN WHICH SUCH INCOME IS ACTUALLY PAID TO HIM BY THE VENTURE CAPITAL COMPANY OR THE VENTURE CAPITAL FUND. ITA NO. 7472 /MUM/ 2017 M/S. HDFC PROPERTY FUND / INCOME TAX OFFICER - 17(1)(5) 8 8. NOTABLY, A CONJOINT READING OF SECTION S 10(23BF) AND SECTION 115U OF THE ACT BRINGS OUT THE INTENTION OF THE LEGISLATURE TO ACCORD A PASS - THROUGH STATUS TO SEBI REGISTERED VCFS. PERTINENTLY, WHILE SECTION 10(23BF) OF THE ACT GRANTS EXEMPTION IN THE HANDS OF VCF IN RESPECT OF INCOMES EARNED FRO M INVESTMENTS IN VENTURE CAPITAL UNDERTAKINGS; AT THE SAME TIME, IN TERMS OF SECTION 115U OF THE ACT THE INCOME ACCRUING OR ARISING TO THE UNIT HOLDERS OF THE SUCH VCF OUT OF INVESTMENTS MADE IN VENTURE CAPITAL UNDERTAKINGS IS PRESCRIBED TO BE TAXABLE IN T HE HANDS OF SUCH UNIT HOLDERS IN THE MANNER AS IF IT WERE THE INCOME ACCRUING OR ARISING TO OR RECEIVED BY SUCH UNIT HOLDERS, HAD SUCH UNIT HOLDERS MADE INVESTMENTS DIRECTLY IN THE VCUS. THUS , SO FAR AS THE ASSESSMENT YEAR UNDER CONSIDERATION IS CONCERNED , THE RELEVANT LEGAL POSITION CAN BE SUMMARISED AS FOLLOWS. THAT A NY INCOME OF A VCF EARNED FROM INVESTMENTS IN VCU S IS EXEMPT IN THE HANDS OF THE VC F , SUBJECT OF COURSE, TO THE CONDITIONS PRESCRIBED IN SECTION 10(23BF) OF THE ACT; THAT SUCH INCOME WOULD B E TAXABLE IN THE HANDS OF THE UNIT HOLDERS OF THE VCF; THAT SUCH INCOME IS TAXABLE IN THE HANDS OF THE UNIT HOLDERS IN THE MANNER AS IF IT WERE THE INCOMES ACCRUING OR ARISING TO OR RECEIVED BY SUCH UNIT HOLDERS HAD THE UNIT HOLDERS MADE THE INVESTMENTS DI RECTLY IN THE VCU S ; AND , THAT SO FAR AS THE INCOME OF VCFS EARNED FROM INVESTMENTS OTHER THAN THE INVESTMENTS IN VCUS IS CONCERNED , THE SAME WOULD BE TAXABLE IN THE HANDS OF VCF ITSELF . 9. IN THE BACKDROP OF THE AFORESAID LEGAL POSITION, WE MAY NOW COME TO THE SPECIFIC DISPUTE IN THE CASE BEFORE US. IN THE PRESENT CASE, NOTABLY THE ASSESSEE TRUST IS REGISTERED UNDER THE INDIAN TRUST ACT, 1882 VIDE TRUST DEED DATED 06.11.2004. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE IS REGISTERED AS A VCF UNDER THE VC F REGULATIONS OF SEBI VIDE A CERTIFICATE OF REGISTRATION DATED 23.12.2004. THEREFORE, THE ASSESSEE IS ELIGIBLE TO STAKE ITS CLAIM FOR EXEMPTION UNDER SECTION 10(23FB) OF THE ACT. T HE SAID CLAIM HAS BEEN DENIED BY THE I NCOME - T AX A UTHORITIES PRIMARILY ON TWO GROUNDS. FIRSTLY, THE ASSESSING OFFICER NOTED THAT THE INVESTMENTS MADE BY THE ASSESSEE IN THE UNITS OF MUTUAL FUNDS AND IN D EBENTURE ITA NO. 7472 /MUM/ 2017 M/S. HDFC PROPERTY FUND / INCOME TAX OFFICER - 17(1)(5) 9 APPLICATION MONEY DO NOT QUALIFY TO BE INVESTMENTS IN VCUS, THUS THE SAME IS IN VIOLATION OF THE PROVISIONS OF ITS TRUST DEED. SECONDLY, AS PER THE ASSESSING OFFICER, THE INVESTMENT IN D EBENTURE APPLICATION MONEY IS ALSO IN VIOLATION OF SEBI VCF R EGULATIONS. THE AFORESAID TWO POINTS PREVAILED WITH THE ASSESSING OFFICER TO CONCLUDE THAT THE ASSESSEE HAS NOT COMPLIED WITH THE CONDITIONS PRESCRIBED FO R A VCF, SO AS TO QUALIFY FOR EXEMPTION UNDER SECTION 10(23BF) OF THE ACT. 10. IN THIS BACKGROUND , THE RIVAL COUNSELS HAVE MADE THEIR SUBMISSIONS AND REFERRED TO THE RELEVANT MATERIAL ON RECORD. FIRSTLY, THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ASSERTED THAT THE ASSESSEE QUALIFIES TO BE A VCF AS MANDATED BY SECTION 10(23FB) OF THE ACT AND THEREFORE THE ACTION OF THE INCOME - TAX AUTHORITIES IS UNWARRANTED. ELABORATING ON THIS ASPECT , IT HAS BEEN ASSERTED BY REFERRING TO THE PRO VISIONS OF EXPLANATION - (B) ( A )( I ) TO SECTION 1 0(23F B ) OF THE ACT TO SAY THAT THE ASSESSEE FULFILS THE THREE CONDITIONS, VIZ. THAT IT IS OPERATING UNDER TRUST DEED ; THAT THE DEED IS REGISTERED UNDER THE PROVISIONS OF REGISTRATION ACT, 1808 ; AND , THAT ITS CE RTIFICATE OF REGISTRATION GRANTED UNDER SEBI - VCF REGULATIONS DATED 23.12.2004 CONTINUES TO BE SUBSIST. COMING TO THE SPECIFIC POINT BY THE ASSESSING OFFICER THAT IT HAS VIOLATED THE PROVISIONS OF VCF REGULATIONS OF SEBI , THE LEARNED COUNSEL FOR THE ASSESSEE EMPHASISED THAT THE ASSESSING OFFICER IS WRONG IN SAYING SO IN THE ABSENCE OF ANY ADVERSE ACTION BY THE CONCERNED REGULATOR, I.E. SEBI. IT HAS BEEN CANVASSED ON THE BASIS OF THE JUDGEMENT OF THE HON'BLE SUPREME COURT I N THE CASE OF GESTETNER DUPLICATORS P. LTD. VS. CIT 117 ITR 1 THAT IT WAS NOT OPEN FOR THE ASSESSING OFFICER TO ASSUME VIOLATION OF VCF REGULATIONS OF SEBI SO LONG AS THE CERTIFICATE OF REGISTRATION GRANTED BY SEBI IS NOT WITHDRAWN BY A PROCESS KNOWN TO LA W. EVEN REGARDING THE PURPORTED VIOLATION OF ASSESSEES OWN TRUST DEED , AS SOUGHT TO BE MADE OUT BY THE ASSESSING OFFICER , THE LEARNED A.R. EXPLAINED THAT UN TIL THE ASSESSEE COULD ACTUALLY DEPLOY THE FUNDS IN THE TARGETED INVESTMENTS IN VCUS, FOR A TEMPORA RY PERIOD SUCH FUNDS WERE DEPLOYED IN MUTUAL FUNDS AND IN CONVERTIBLE DEBENTURE APPLICATION MONEY WHICH YIELDED INCOME. SUCH INVESTMENTS ITA NO. 7472 /MUM/ 2017 M/S. HDFC PROPERTY FUND / INCOME TAX OFFICER - 17(1)(5) 10 WERE PURELY TEMPORARY IN NATURE, AND WERE PERMISSIBLE BY THE TRUST DEED ITSELF AND THEREFORE THE SAID ACTION IS NOT IN VIOLATION OF THE TRUST DEED. ON THE CHARGE BY THE ASSESSING OFFICER THAT SUCH INVESTMENTS CONSTITUTE D VIOLATION OF VCF REGULATIONS OF SEBI, THE LEARNED A.R. REFERRED TO A COMMUNICATION DATED 10.06.2017 MADE BY SEBI (INFORMAL GUIDANCE) SCHEME 2003 IN CONNEC TION WITH VCF REGULATIONS. BY REFERRING TO A COPY OF THIS COMMUNICATION, WHICH IS PLACED AT PAGES 198 AND 199 OF THE PAPER BOOK , IT IS CANVASSED THAT THE SEBI OPINED , IN THE CONTEXT OF DEPLOYMENT OF IDLE (TEMPORARY FUNDS) LYING IN BANK ACCOUNT WITH THE VCF S . THE LEARNED A.R. EMPHASISED THAT EVEN AS PER SEBI , IT IS PERMISSIBLE FOR SEBI - REGISTERED VCFS TO INVEST ANY UN - INVESTED PORTION OF THEIR INVESTABLE FUNDS IN LIQUIDITY MUTUAL FUNDS OR BANK DEPOSITS OR SUCH - LIKE LIQUID ASSETS TILL THE DEPLOYMENT OF FUNDS MAD E AS PER THE OBJECTIVES OF THE VCF. IT WAS THEREFORE POINTED OUT THAT ON BOTH THE POINTS THE INCOME - TAX AUTHORITIES HAVE ERRED IN DENYING THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 10(23BF) OF THE ACT. 11. ON THE ASPECT OF EXEMPTION UNDER SECTION 20(23BF) OF THE ACT THE LEARNED CIT(A) - DR HAS TAKEN US THROUGH THE ORDERS OF THE A UTHORITIES BELOW AND REITERATED THEIR RESPECTIVE STAND S . THE LEARNED CIT(A) - DR EMPHASISED THAT NO DOUBT THE CERTIFICATE OF SEBI WAS CONTINUING BUT CLAUSE 8 OF THE SEBI - VCF R EGULATIONS, WHICH READS AS UNDER , CLEARLY PRESCRIBE THAT THE REGISTRATION GRANTED IS SUBJECT TO THE AFORESAID CONDITIONS: - 8. THE CERTIFICATE GRANTED UNDER REGULATION 7 SHALL BE INTER ALIA, SUBJECT TO THE FOLLOWING CONDITIONS, NAMELY: (A) THE VENTURE CA PITAL FUND SHALL ABIDE BY THE PROVISIONS OF THE ACT 1 [* * *] AND THESE REGULATIONS; (B) THE VENTURE CAPITAL FUND SHALL NOT CARRY ON ANY OTHER ACTIVITY OTHER THAN THAT OF A VENTURE CAPITAL FUND; (C) THE VENTURE CAPITAL FUND SHALL FORTHWITH INFORM THE BO ARD IN WRITING IF ANY INFORMATION OR PARTICULARS PREVIOUSLY SUBMITTED TO THE BOARD ARE FOUND TO BE FALSE OR MISLEADING IN ANY MATERIAL PARTICULAR OR IF THERE IS ANY CHANGE IN THE INFORMATION ALREADY SUBMITTED. ITA NO. 7472 /MUM/ 2017 M/S. HDFC PROPERTY FUND / INCOME TAX OFFICER - 17(1)(5) 11 ACCORDING TO HIM , EVERY VCF IS OBLIGATED TO ABIDE BY THE PRESCRIBED R EGULATIONS AND THAT IT SHOULD CARRY OUT NO ACTIVITY OTHER THAN THAT OF VCF. THE CASE MADE OUT IS THAT MAKING OF INVESTMENT IN MUTUAL FUNDS AND EARNING INTEREST ON DEBENTURE APPLICATION MONIES CONSTITUTE ACTIVITI ES IN VIOLATION OF VCF REGULATIONS OF SEBI AND THEREFORE THE ASSESSING OFFICER AND THE CIT(A) MADE NO MISTAKE IN REJECTING THE CLAIM UNDER SECTION 10(23BF) OF THE ACT. IN PARTICULAR PARA 6 . 7 OF THE ORDER OF THE ASSESSING OFFICER HAS BEEN REFERRED TO, WHICH READS AS UNDER: - 6.7 THEREFORE, IN VIEW OF ABOVE FACTS AND LEGAL POSITION, IT IS ESTABLISHED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE DOES NOT FULFILL THE CONDITION OF BEING VCF WITHIN THE MEANING OF SUB CLAUSE (B ) (I) AND (B) (II) TO EXPLANATION [1] OF SECTION 10(23FB) BECAUSE IT HAS DERIVED ITS INCOME IN VIOLATION OF TRUST DEED AND SURE HAVE VIOLATED THE REGULATIONS IN ITS BEHALF HENCE HIS REGISTRATION ALSO DOES NOT HOLD GOOD FOR T HE YEAR. I) HE INCOME OF THE ASS ESSE IS NOT DERIVED FROM INVESTMENT IN VCU. II) THE AMOUNT OF RS.19,94,00,000/ - IS DEBENTURE APPLICATION MONEY AND INCOME DERIVED ON THAT A MOUNT IS NOT FROM INVESTMENT IN VCU. SINCE SUCH APPLICATION MONEY IS NOT PART OF THE CAPITAL OF THE ENTITY. THEREFO RE, ITS INCOME CANNOT BE HELD AS ARISING FROM INVESTMENT 'AS REQUIRED U/S 10(23FB) FOR BEING EXEMPT'. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. OSTENSIBLY, AS OUR DISCUSSION IN THE EARLIER PARA S SHOW , THE SUM AND SUBSTANCE OF THE STAND OF ASSESSING OFFICER REVOLVES AROUND THE MANNER IN WHICH ASSESSEE HAS MADE CERTAIN INVESTMENTS ; FIRSTLY, IN THE UNITS OF MUTUAL FUNDS; AND, SECONDLY, TOWARDS DEBENTURE APPLICATION MONIES. THE FIRST OBJECTION OF T HE ASSESSING OFFICER IS THAT SUCH INVESTMENTS ARE NOT PERMITTED IN TERMS OF THE TRUST DEED ITSELF. IN THIS CONTEXT, WE FIND THAT THE APPELLANT HAS BEEN CONSTITUTED IN TERMS OF THE TRUST DEED DATED 06.11.2004 SETTLED BY HOUSING DEVELOPMENT FINANCE CORPORAT ION LTD. IT HAS BEEN CONSTITUTED TO POOL TOGETHER RESOURCES, BOTH INSTITUTIONAL AND OTHER INVESTORS, FOR MAKING INVESTMENT IN HIGH GROWTH SECTORS INCLUDING REAL ESTATE SECTOR IN INDIA. THE OBJECTS OF THE TRUST ARE CONTAINED IN CLAUSE 6, A COPY OF WHICH I S PLACED IN THE PAPER BOOK. THOUGH WE ARE NOT REPRODUCING THE CONTENTS OF ITA NO. 7472 /MUM/ 2017 M/S. HDFC PROPERTY FUND / INCOME TAX OFFICER - 17(1)(5) 12 THE TRUST DEED, ITS PERUSAL SHOWS THAT THE INVESTMENTS BY THE APPELLANT ARE REQUIRED TO BE MADE IN COMPLIANCE WITH THE REQUIREMENTS OF VCF REGULATIONS OF SEBI. IN TERMS OF CLAUSE 4 .1.27, THE TRUST DEED ALSO ENVISAGES TEMPORARY INVESTMENTS WHICH HAVE BEEN DEFINED TO MEAN, INTER - ALIA , MONEY MARKET INSTRUMENTS, UNITS OF MONEY MARKET LIQUID MUTUAL FUNDS OR OTHER SIMILAR DEBT INSTRUMENTS. THE SAID CLAUSE ALSO BRINGS OUT THAT THE TEMPORA RY INVESTMENTS ARE ALSO TO BE UNDERSTOOD AS REFERRING TO SHORT TERM SECURITIES ISSUED ON GUARANTEE BY THE INDIAN GOVERNMENT , OR ITS AGENCIES OR INSTRUMENTALTIES , OVERNIGHT AND SHORT TERM INSTRUMENTS , LIKE - BANK DEPOSITS, ETC. THOUGH WE ARE PRESENTLY CONCE RNED WITH INVESTMENTS MADE IN LIQUID MUTUAL FUND SCHEMES, WE ARE ENUMERATING THE OTHER ASPECTS OF THE EXPRESSION TEMPORARY INVESTMENTS STATED IN THE TRUST DEED ONLY TO BRING OUT THAT THE TRUST IS ENTITLED TO MAKE SUCH - LIKE INVESTMENTS OF ITS AVAILABLE FU NDS, AWAITING REGULAR INVESTMENT IN THE STATED PURPOSES. IN FACT, CLAUSE 11.1 OF THE TRUST DEED DEALING WITH I NVESTMENT OF TRUST FUND SPECIFICALLY PRESCRIBES THAT THE TRUST MAY INVEST THE AVAILABLE CONTRIBUTIONS AWAITING INVESTMENT OR REALISED FUNDS AWA ITING DISTRIBUTION IN TEMPORARY INVESTMENTS. THE AFORESAID CLEARLY BRINGS OUT THAT THE APPELLANT IS EMPOWERED BY ITS TRUST DEED TO MAKE TEMPORARY INVESTMENTS WHICH, INTER - ALIA , WOULD INCLUDE WITHIN ITS PURVIEW THE INVESTMENTS IN QUESTION. APART THEREFROM, WE FIND ENOUGH POTENCY IN THE PLEADINGS OF THE APPELLANT THAT THERE IS AN INDUSTRY AND TRADE PRACTICE WHEREBY VENTURE CAPITAL FUNDS RETAIN CERTAIN AMOUNTS WITH THEM, PENDING REGULAR INVESTMENTS IN VENTURE CAPITAL UNDERTAKINGS FOR CERTAIN P URPOSES , LIKE DISBURSEMENT OF EXPENSES, DISTRIBUTION TO UNIT - HOLDERS, ETC. TILL SUCH TIME THE FUNDS ARE NOT UTILISED FOR THE MAIN PURPOSES, ADVISABLY THE VENTURE CAPITAL FUND WOULD MAKE TEMPORARY INVESTMENTS TO EARN MONIES. THE COURSE ADOPTED BY THE ASSE SSEE IN THIS REGARD WAS BY INVESTING IN UNITS OF MUTUAL FUNDS OR EVEN BY WAY OF FIXED DEPOSITS WITH BANKS. INSOFAR AS THE OBJECTION OF THE ASSESSING OFFICER REGARDING NON - COMPLIANCE WITH THE VCF REGULATIONS OF SEBI IS CONCERNED, HERE ALSO WE DO NOT FIND A NY SUPPORT FOR THE STAND TAKEN BY THE ASSESSING OFFICER. IN FACT, OUR ATTENTION WAS DRAWN TO SEBI (INFORMAL GUIDANCE) SCHEME, 2003 ISSUED BY SEBI WITH REGARD TO ITA NO. 7472 /MUM/ 2017 M/S. HDFC PROPERTY FUND / INCOME TAX OFFICER - 17(1)(5) 13 VCF REGULATIONS WHERE THE TEMPORARY DEPLOYMENT OF FUNDS BY A VENTURE CAPITAL FUND IN LIQUID MU TUAL FUNDS OR BANK DEPOSITS OR OTHER LIQUID ASSETS OF HIGH QU ALITY SUCH AS TREASURY BILLS, ETC. WERE PERMISSIBLE. MOREOVER, WE CANNOT LOSE SIGHT OF THE FACT THAT THE CERTIFICATE OF REGISTRATION AS A VENTURE CAPITAL FUND ISSUED BY SEBI CONTINUES TO SUBSIST DURING THE PERIOD UNDER CONSIDERATION, WHICH CLEARLY BELIES THE ASSERTION OF THE ASSESSING OFFICER THAT THERE HAS BEEN A VIOLATION OF VCF REGULATIONS OF SEBI. THUS, ON AN OVERALL ANALYSIS OF THE SITUATION, WE FIND THAT THE TEMPORARY INVESTMENT MADE IN TH E UNITS OF MUTUAL FUNDS IS WITHIN THE AMBIT OF APPELLANTS TRUST DEED AND ALSO WITHIN THE AMBIT OF VCF REGULATIONS OF SEBI. 13. INSOFAR AS THE INVESTMENT MADE BY THE ASSESSEE IN DEBENTURE APPLICATION MONIES IS CONCERNED, IN THIS CONTEXT ALSO WE FIND THAT APPELLANT HAS A GOOD CASE. AT THE TIME OF HEARING, OUR ATTENTION WAS ALSO DRAWN TO THE DETAILED WRITTEN SUBMISSION S MADE BEFORE THE LOWER AUTHORITIES , WHICH BRING OUT THAT THE INVESTMENT IN QUESTION WERE TOWARDS OPTIONALLY CONVERTIBLE DEBENTURES. THE ASSE SSEE ASSERTED BEFORE THE LOWER AUTHORITIES THAT PUTTING APPLICATION MONEY IN CONVERTIBLE DEBENTURES IS ALSO TO BE UNDERSTOOD AS INVESTMENT IN EQUITY LINKED INSTRUMENTS BECAUSE ULTIMATELY THE DEBENTURE WILL BE CONVERTED INTO EQUITY SHARES. IN THIS CONTEXT, WITH REFERENCE TO THE VCF REGULATIONS OF SEBI, ASSESSEE POINTED OUT THAT REGULATION 12(II) OF THE VCF REGULATIONS PRESCRIBES THAT NOT MORE THAN 33.33% OF INVESTIBLE SURPLUS MAY BE IN DEBT INSTRUMENT OF A VCU IN WHICH THE VCF HAS ALREADY MADE INVESTMENT BY WAY OF EQUITY. THE LEARNED REPRESENTATIVE HAS POINTED OUT THAT ASSESSEE HAD MADE INVESTMENT IN ONE OF THE VCUS BY WAY OF EQUITY AND ACCORDINGLY, EVEN IF THE INSTANT DEBENTURE APPLICATION MONEY IS CONSIDERED AS A DEBT INSTRUMENT , THE SAME IS WITHIN THE PE RMISSIBLE LIMITS THOUGH, ACCORDING TO HIM, INVESTMENT IN EQUITY LINKED CONVERTIBLE DEBENTURES IS TO BE UNDERSTOOD AS LINKED TO EQUITY SHARES ONLY . ALL THESE ASPECTS HAVE BEEN TIME AND AGAIN REITERATED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES AS WELL A S BEFORE US AND WE FIND THAT IN NEITHER OF THE ORDERS OF THE AUTHORITIES BELOW THERE IS ANY ITA NO. 7472 /MUM/ 2017 M/S. HDFC PROPERTY FUND / INCOME TAX OFFICER - 17(1)(5) 14 NEGATION TO THE SAME. SO FAR AS VCF REGULATIONS OF SEBI ARE CONCERNED, WE ARE IN AGREEMENT WITH THE ASSESSEE THAT IT DOES ENVISAGE INVESTMENTS IN CONVERTIBLE DEBEN TURE APPLICATION MONEY AS BEING INVESTMENTS WHICH CAN BE SAID TO BE LINKED TO INVESTMENT IN EQUITY SHARES. THUS, ON ACCOUNT OF THE AFORESAID DISCUSSION, WE FIND THAT THE ASSESSEE FULFILS THE REQUIREMENT S OF CLAIMING EXEMPTION UNDER SECTION 10(23FB) OF THE ACT SO FAR AS IT IS RELATABLE TO THE YEAR UNDER CONSIDERATION. 14. TO REITERATE, IT IS ABUNDANTLY CLEAR THAT ASSESSEE IS A VCF OPERATING IN TERMS OF A TRUST DEED REGISTERED UNDER THE PROVISIONS OF THE REGISTRATION ACT, 1908; THAT IT HAS BEEN GRANTED A CE RTIFICATE OF REGISTRATION AS VCF BY SEBI WHICH CONTINUES TO SUBSIST; THAT THERE IS NO ADVERSE ACTION TAKEN OR CONTEMPLATED BY SEBI FOR VIOLATION OF ANY VCF REGULATIONS; THAT THE TARGETED INVESTMENT IN VCUS IS WITHIN THE PURVIEW OF VCF REGULATIONS OF SEBI; THAT ASSESSEE IS PERMITTED BY ITS TRUST DEED AS WELL AS BY THE VCF REGULATIONS OF SEBI TO TEMPORARILY DEPLOY FUNDS IN UNITS OF MUTUAL FUNDS AS WELL AS IN CONVERTIBLE DEBENTURE APPLICATION MONEY. THUS, IN OUR VIEW, ASSESSEE IS ENTITLED TO EXEMPTION ENVISA GED UNDER SECTION 10(23FB) OF THE ACT. 15. SINCE WE HAVE ACCEPTED THE MAIN PLEA OF THE ASSESSEE FOR CLAIM OF EXEMPTION UNDER SECTION 10(23FB) OF THE ACT, THE OTHER ISSUES RAISED IN THE GROUND S OF APPEAL ON WITHOUT PREJUDICE BASIS ARE RENDERED ACADEMIC AND ARE NOT BEING ADJUDICATED FOR THE PRESENT. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY , 201 9 . SD/ - SD/ - ( RAVISH SOOD ) ( G.S. PANNU ) JUDICIAL MEMBER VICE PRESIDENT MUMBAI, DATED: 28 TH FEBRUARY , 201 9 N . P /SSL ITA NO. 7472 /MUM/ 2017 M/S. HDFC PROPERTY FUND / INCOME TAX OFFICER - 17(1)(5) 15 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) - 28 , MUMBAI 4. THE PR. CIT - 17 , MUMBAI 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI