DHFL VENTURE CAPITAL FUND, MUMBAI V. ITO WD 19(3)(4), MUMBAI

ITA 8475/MUM/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4380 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 08-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 06-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UDAY B JAKKE

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI . . , , BEFORE S/SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, J UDICIAL MEMBER ./ I.T.A. NO. 8475 /MUM/ 2010 ( / ASSESSMENT YEAR : 2007 - 08 ) M/S DHFL VENTURE CAPITAL FUND, 4 TH FLOOR, HDIL TOWER, ANANT KANEKAR MARG, BANDRA (E), MUMBAI - 400051 / VS. INCOME TAX OFFICER, WARD 19 (3)(4) , MUMBAI ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AAATD8633 / APPELLANT BY : SHRI VIJAY MEHTA / RESPONDENT BY : SHRI UDAY B JAKKE / DATE OF HEARING : 10 .12. 2015 / DATE OF PRONOUNCEMENT : 08 .0 1. 201 6 O R D E R PER B.R.BASKARAN,AM : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 15.09.2010 PASSED BY LD. CIT(A) - 30, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2007 - 08. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN CONFIRMING THE ACTION OF AO IN REJECTING THE CLAIM OF EXEMPTION U/S 10(23FB) OF INCOME TAX ACT, 1961 AND ACCORDINGLY ASSESSING THE ENTIRE INCOME OF T HE ASSESSEE. ITA NO. 8475 / MUM/ 2010 2 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS A VENTURE CAPITAL FUND AND I T IS REGISTERED WITH THE SECURITIES EXCHANGE BOARD OF INDIA (SEBI). THE ASSESSEE HAS BEEN FORMED AS A PRIVATE TRUST AND THE INCOME EARNED BY IT IS ALL OCATED AMONG ST THE BENEFICIARIES IN THE SPECIFIED RATIO. IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED EXEMPTION U/S 10(23FB) OF THE ACT IN RESPECT OF ITS ENTIRE INCOME . THE AO EXAMINED THE CLAIM OF THE ASSESSEE AND ALSO SEBI GUIDELINES GIVEN IN SEBI (VENTURE CAPITAL FUND) REGULATIONS, 1996. THE CLAUSE 12 (B) OF THE SEBI GUIDELINES PROVIDED THAT VENTURE CAPITAL FUND SHALL NOT INVEST MORE THAN 25% C O RPUS OF THE FUND IN ONE VENTURE CAPITAL UNDERTAKING. THE AO NOTICED THAT FROM THE B ALANCE SHEET OF THE ASSESSEE THAT IT HAS HELD TOTAL UNIT CONTRIBUTION OF RS.61,64,31,028/ - AS ON 31.3.2007 AND THE SAME WAS INVESTED AS UNDER : S.NO. VENTURE CAPITAL UNDERTAKING AMOUNT INVESTED % OF AVAILABLE CORPUS FUNDS 1 M/S J S T RE ALITY PVT LTD. 25,25,00,000 40.96% 2. PROFICIENT REALITY PVT LTD. 3,01,00,000 4.88% 3 BLUE STAR REALTORS PVT.LTD 24,99,66,470 40.55% TOTAL 53,25,66,470 SINCE THE ASSESSEE HAD INVESTED MORE THAN 25% OF THE CONTRIBUTIONS IN THE ABOVE SAID VENTUR E CAPITAL UNDERTAKING , T HE AO HELD THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF CLAUSE 12(B) OF SEBI GUIDELINES (VENTURE C APITAL FUND) REGULATIONS, 1996. T HE ASSESSEE CONTENDED BEFORE THE AO THAT THE TERM CORPUS FUND SHOULD BE TAKEN AS THE AMOUNT COM MITTED BY THE INVESTORS AND NOT ACTUAL CONTRIBUTION MADE BY THEM . HOWEVER, T HE AO TOOK THE VIEW THAT CORPUS LITERALLY MEANS COLLECTION AND IN FINANCIAL TERMS , IT MEANS COLLECTION OF FUNDS . HE FURTHER HELD THAT COLLECTION MEANS WHAT YOU ARE HAVING IN YOUR POSSESSION AT THE MOMENT AND NOT SOMETHING WHICH YOU ARE EXPECTING TO GET IN FUTURE. ACCORDINGLY HE DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE THAT THE CORPUS WOULD ITA NO. 8475 / MUM/ 2010 3 MEAN THE AMOUNT COMMITTED BY THE INVESTORS. IT IS PERTINENT TO NOTE THAT GR OSS AMOUNT COMMITTED BY THE INVESTOR S WAS RS.101.02 CRORES AS ON 31.3.2007, EVEN THOUGH THE AMOUNT ACTUALLY CONTRIBUTED BY THE M WA S RS.61.64 CR ORES AS ON 31.3.2007 . ACCORDINGLY, THE ASSESSEE CONTENDED THAT THE INVESTMENT MADE IN EACH OF THE ABOVE SAID VENT URE CAPITAL UNDERTAKING DOES NOT EXCEED 25% OF THE COMMITTED CORPUS FUND . THE SAME WAS NOT ACCEPTABLE TO THE AO AND ACCORDINGLY HE DENIED THE CLAIM OF THE ASSESSEE FOR EXEMPTION U /S 10(23FB) OF THE ACT. THE ASSESSEE HAD ALSO CLAIMED EXEMPTION ON THE IN TEREST INCOME EARNED FROM BANK DEPOSITS. THE AO TOOK THE VIEW THAT THE EXEMPTION U/S 10(23FB) SHALL BE AVAILABLE ONLY IN RESPECT OF INCOME EARNED FROM INVESTMENTS MADE IN A VENTURE CAPITAL UNDERTAKING. SINCE THE BANKS IN WHICH THE ASSESSEE HAD MADE DEPOS ITS CANNOT BE CONSIDERED AS VENTURE CAPITAL UNDERTAKINGS AND SINCE THE INTEREST INCOME IS REQUIRED TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES, THE AO HELD THAT THE ASSESSEE CANNOT CLAIM EXEMPTION U/S 10(23FB) OF THE ACT ON THE INTEREST INCOM E. ACCORDINGLY, THE AO ASSESSED THE ENTIRE INCOME OF THE ASSESSEE BY DETERMINING THE TOTAL INCOME AT RS.1.10 CR. THE LD. CIT(A) ALSO CONFIRMED THE SAME. HENCE, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 4. THE LD A.R ADVANCED HIS ARGUMENTS SUPPORTIN G THE CLAIM MADE BY THE ASSESSEE AND THE LD D.R PLACED STRONG RELIANCE ON THE ORDER OF LD CIT(A). THE LD. A.R SUBMITTED THAT THE AO HAS PLACED RELIANCE ON SEBI (VENTURE CAPITAL FUND) REGULATIONS, 1996 (HEREINAFTER OLD REGULATION), WHICH HAS SINCE BEEN R EPEALED AND REPLACED BY SECURITIES AND EXCHANGE BOARD OF INDIA (ALTERNATIVE INVESTMENT FUNDS) REGULATIONS, 2012 (HEREINAFTER NEW REGULATION). HE SUBMITTED THAT THE TERM CORPUS HAS NOT BEEN DEFINED UNDER THE OLD REGULATION, BUT THE SAME HAS BEEN DEFINE D AS UNDER IN CLAUSE (H) OF SECTION 2 OF THE NEW REGULATION: - ITA NO. 8475 / MUM/ 2010 4 CORPUS MEANS THE TOTAL AMOUNT OF FUNDS COMMITTED BY INVESTORS TO THE ALTERNATIVE INVESTMENT FUND BY WAY OF A WRITTEN CONTRACT OR ANY SUCH DOCUMENT AS ON A PARTICULAR DATE . THE LD. AR SUB MITTED THAT , AS PER THE ABOVE SAID DEFINITION OF THE TERM CORPUS WOULD MEAN THE TOTAL AMOUNT OF FUNDS COMMITTED BY INVESTORS TO THE ALTERNATIVE INVESTMENT FUND AND NOT THE ACTUAL CONTRIBUTION MADE BY THE INVESTORS . HE SUBMITTED THAT THE VENTURE CAPITAL UNDERTAKINGS WOULD ALSO REQUIRE FUNDS IN A PHASED MANNER IN ACCORDANCE WITH THE PACE OF EXECUTION OF PROJECTS AND HENCE THE CONTRIBUTIONS SHALL ALSO BE COLLECTED IN A PHASED MANNER FROM THE INVESTORS. HENCE, THE NEW REGULATIONS HAVE PROVIDED THE DEFIN ITIO N OF THE TERM CORPUS AS THE TOTAL AMOUNT OF FUNDS COMMITTED BY INVESTORS, KEEPING IN VIEW THE PRACTICALITIES OF THE SITUATION DISCUSSED ABOVE . 5. WE HAVE GONE THROUGH THE SECURITIES AND EXCHANGE BOARD OF INDIA (ALTERNATIVE INVESTMENT FUNDS) REGULA TIONS, 2012 AND SECTION 39 CONTAINS THE PROVISIONS RELATING TO REPEAL AND SAVING AND THE SAME READ S AS UNDER: - 39 (1) THE SECURITIES AND EXCHANGE BOARD OF INDIA (VENTURE CAPITAL FUNDS) REGULATIONS, 1996 HEREBY SHALL STAND REPEALED. (2) NOTWITHSTAN DING SUCH REPEAL: (A) ANYTHING DONE OR ANY ACTION TAKEN OR PURPORTED TO HAVE BEEN DONE OR TAKEN, INCLUDING SUSPENSION OR CANCELLATION OF CERTIFICATE OF REGISTRATION, ANY INQUIRY OR INVESTIGATION COMMENCED OR SHOW CAUSE NOTICE ISSUED UNDER THE REPEALED REGU LATIONS, SHALL BE DEEMED TO HAVE BEEN DONE OR TAKEN UNDER THE CORRESPONDING PROVISIONS OF THESE REGULATIONS. (B) & (C) .. (3) AFTER THE REPEAL OF SECURITIES AND EXCHANGE BOARD OF INDIA (VENTURE CAPITAL FUNDS) REGULATIONS, 1996, ANY REFERENCE THERETO IN ANY OTHER REGULATIONS MADE, GUIDELINES OR CIRCULARS ISSUED THERE UNDER BY THE BOARD SHALL BE ITA NO. 8475 / MUM/ 2010 5 DEEMED TO BE A REFERENCE TO THE CORRESPONDING PROVISIONS OF THESE REGULATIONS. WE HAVE EARLIER NOTICED THAT THE ASSESSING OFFICER HAS PLACED RELIANCE ON THE PROVISIONS OF SEC. 12(B) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (VENTURE CAPITAL FUNDS) REGULATIONS, 1996 TO DENY THE EXEMPTION U/S 10(23FB) OF THE ACT. THE SEBI (VENTURE CAPITAL FUNDS) REGULATION, 1996 HAS SINCE BEEN REPEALED BY SECURITIES AND EXC HANGE BOARD OF INDIA (ALTERNATIVE INVESTMENT FUNDS) REGULATIONS, 2012 (REFERRED ABOVE). WE FURTHER NOTICE THAT THE TERM CORPUS HAS NOT BEEN DEFINED UNDER THE OLD REGULATION, BUT THE SAME HAS BEEN DEFINED IN THE NEW REGULATION AS UNDER: - CORPUS MEANS THE TOTAL AMOUNT OF FUNDS COMMITTED BY INVESTORS TO THE ALTERNATIVE INVESTMENT FUND BY WAY OF A WRITTEN CONTRACT OR ANY SUCH D OCUMENT AS ON A PARTICULAR DATE. SINCE THE NEW REGULATION HAS DEFINED THE TERM CORPUS AND SINCE UNDER THE PROVISION RELATING T O REPEAL AND SAVING (REFERRED ABOVE), THE REFERENCE TO SEBI (VENTURE CAPITAL FUNDS) REGULATIONS SHALL BE DEEMED TO BE A REFERENCE TO THE NEW REGULATION, WE ARE OF THE VIEW THAT THE DEFINITION GIVEN TO THE TERM CORPUS UNDER THE NEW REGULATIONS CAN BE AP PLIED UNDER THE REPEALED OLD PROVISION ALSO. ACCORDINGLY, WE ARE OF THE VIEW THAT THE ASSESSEE IS JUSTIFIED IN CONTENDING THAT THE TOTAL AMOUNT OF FUNDS COMMITTED BY INVESTORS SHALL BE TAKEN AS CORPUS FOR THE PURPOSE OF SECTION 12(B) OF THE OLD REGULATI ONS ALSO. 6. THE ASSESSEE HAS SUBMITTED THAT THE AMOUNT COMMITTED BY THE INVESTORS STAND AT RS.101.02 CRORES AND AS PER THE DEFINITION REFERRED ABOVE, THE SAME SHOULD BE CONSIDERED AS CORPUS. ACCORDINGLY, THE INVESTMENT MADE BY THE ASSESSEE IN EACH O F THE VENTURE CAPITAL UNDERTAKINGS WOULD WORK OUT TO LESS THAN 25% OF THE CORPUS AND HENCE IT ITA NO. 8475 / MUM/ 2010 6 CANNOT BE SAID THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF 12(B) OF SEBI (VENTURE CAPITAL FUNDS) REGULATION, 1996. 7. T HE LD. AR SUBMITTED THAT THE ASSES SEE HAS NOT VIOLATED ANY OF THE CONDITIONS PRESCRIBED IN SEC. 10(23FB) OF THE ACT AND HENCE IT IS ENTITLED TO CLAIM EXEMPTION UNDER THAT SECTION. HE SUBMITTED THE SEC. 10(23FB) HAS DEFINED VENTURE CAPITAL FUND AS UNDER AS PER THE PROVISIONS EXISTING AT THE RELEVANT POINT OF TIME: - VENTURE CAPITAL FUND MEANS SUCH FUND ( I ) OPERATING UNDER A TRUST DEED REGISTERED UNDER THE PROVISIONS OF THE REGISTRATION ACT, 1908 (16 OF 1908) OR OPERATING AS A VENTURE CAPITAL SCHEME MADE BY THE UNIT TRUST OF INDIA ESTABLISHE D UNDER THE UNIT TRUST OF INDIA ACT, 1963 (52 OF 1963); ( II ) WHICH HAS BEEN GRANTED A CERTIFICATE OF REGISTRATION UNDER THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992), AND REGULATIONS MADE THEREUNDER; ( III ) WHICH FULFILS THE CONDITIIONS AS MAY BE S PECIFIED, WITH THE APPROVAL OF THE CENTRAL GOVERNMENT, BY THE SECURITIES AND EXCHANGE BOARD OF INDIA, BY NOTIFICATION IN THE OFFICIAL GAZETTE, IN THIS BEHALF; THE LD A.R SUBMITTED THAT THE ASSESSEE IS REGISTERED AS A TRUST UNDER THE PROVISIONS OF REGIST RATION ACT, 1908 AND IT HAS BEEN GRANTED A CERTIFICATE OF REGISTRATION UNDER THE SEBI REGULATIONS. FURTHER, THERE IS NO ALLEGATION MADE BY THE SEBI THAT THE ASSESSEE HAS NOT FULFILLED ANY OF THE CONDITIONS SPECIFIED BY IT. HE SUBMITTED THAT THE REGISTRA TION GRANTED BY SEBI HAS NOT BEEN CANCELLED TILL DATE. ACCORDINGLY, HE SUBMITTED THAT THE ASSESSEE HAS FULFILLED THE CONDITIONS PRESCRIBED UNDER SEC. 10(23FB) FOR AVAILING THE EXEMPTION. 8. HE FUR THE R SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN PRESUMIN G THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SEBI REGULATIONS , WHEN THERE IS NO SUCH ALLEGATION MADE BY THE SEBI, I.E., THE AUTHORITY ADMINISTERING ITA NO. 8475 / MUM/ 2010 7 THE SEBI ACT . IN THIS REGARD, THE LD A.R DREW SUPPORT FROM THE DECISION DATED 27.5.2011 RENDERED BY T HE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF ITO V/S GUJARAT INFORMATION TECHNOLOGY FUND IN ITA NO.2264/AHD/2007 (AY - 2003 - 04) , WHEREIN THE TRIBUNAL HELD THAT THE AO WAS NOT REQUIRED TO GO INTO THE VIOLATION OF CONDITIONS, IF ANY, PERTAINING TO MATTERS OF GRANT OF SUCH CERTIFICATE OF REGISTRATION. THE LD. AR FURTHER SUBMITTED THAT THE HYDERABAD BENCH OF THE TRIBUNAL HAS ALSO CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF ACIT V/S SMALL IS BEAUTIFUL IN ITA NO.1004 AND 1005/HYD/2012 (AY - 2006 - 07 AND 200 7 - 08) ORDER DATED 4.7.2013 , WHEREIN IT HAS FOLLOWED THE DECISION OF AHMEDABAD BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF GUJARAT INFORMATION TECHNOLOGY FUND (SUPRA) . 9 . WE NOTICE THAT T HE ISSUE , VIZ., WHETHER THE ASSESSING OFFICER CAN LOOK INTO THE VIOLATION OF THE CONDITIONS , IF ANY, PRESCRIBED IN THE SEBI (VENTURE CAPITAL FUND) REGULATIONS WAS CONSIDERED BY THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF GUJARAT INFORMATION TECHNOLOGY FUND (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER : (5) `WHET HER AO CAN LOOK INTO WHETHER VENTURE CAPITAL FUND FULFILLS CONDITIONS LAID DOWN IN SEBI (VENTURE CAPITAL FUNDS) REGULATIONS, 1996. 24. IN OUR CONSIDERED VIEW THE AO IS DUTY BOUND TO ENQUIRE WHETHER THE ASSESSEE TRUST IS REGISTERED UNDER THE REGISTRATION A CT, 1908 AND HAS BEEN GRANTED CERTIFICATE OF REGISTRATION BY SEBI UNDER SEBI (VENTURE CAPITAL FUNDS) REGULATIONS, 1996. BUT HIS ROLE IS CONFINED TO SATISFY HIMSELF WITH SUCH CERTIFICATES GRANTED AND NOT BEYOND. SUB - CLAUSE (I) AND SUB - CLAUSE (II) OF CLAUSE ( B) UNDER EXPLANATION 1 ONLY REQUIRES TO ENSURE THAT ASSESSEE TRUST HAS CERTIFICATES AS MENTIONED THEREIN. EVEN IF CERTIFICATES ARE GRANTED UNDER MIS - REPRESENTATION OF FACTS THEN IT IS FOR THE CONCERNED AUTHORITIES TO LOOK INTO THE MATTER AND TAKE ACTION UNDER THE PROVISIONS OF THE CONCERNED STATUTE UNDER WHICH CERTIFICATES ARE GRANTED. IN THIS REGARD THE OBSERVATIONS OF THE HON. SUPREME COURT IN THE CASE ITA NO. 8475 / MUM/ 2010 8 OF GESTETNER DUPLICATORS (P.) LTD. (SUPRA) ARE VERY RELEVANT. IN THAT CASE THE COMMISSIONER HAD GRANTE D RECOGNITION TO THE P.F. AS FAR BACK AS 1937. THE ASSESSEE A PRIVATE LIMITED COMPANY PAID TO SALES - MEN A FIXED MONTHLY SALARY AND COMMISSION AT FIXED PERCENTAGE OF TURNOVER AND ALSO PAID EMPLOYER'S CONTRIBUTION TO THE P.F. ON THE BASIS OF MONTHLY SALARY A S WELL AS COMMISSION AND CREDITED THEM INTO INDIVIDUAL ACCOUNT OF THESE SALES - MEN IN P.F. MAINTAINED AND RECOGNIZED BY THE COMMISSIONER. A PART OF SUCH COMMISSION AND CONSEQUENTLY PROVIDENT FUND ON SUCH COMMISSION WAS SOUGHT TO BE DISALLOWED. THE MATTER WE NT UP TO THE HON. SUPREME COURT. IT OBSERVED AS UNDER: - 'IT WOULD BE CONDUCIVE TO JUDICIAL DISCIPLINE AND THE MAINTAINING OF CERTAINTY AND UNIFORMITY IN ADMINISTERING THE LAW THAT THE TAXING AUTHORITIES SHOULD PROCEED ON THE BASIS THAT THE RECOGNITION GRAN TED AND AVAILABLE FOR ANY PARTICULAR ASSESSMENT YEAR IMPLIES THAT THE PROVIDENT FUND SATISFIES ALL THE CONDITIONS UNDER RULE 4 OF PART A OF THE FOURTH SCHEDULE TO THE ACT, AND NOT SIT IN JUDGMENT OVER IT.' THUS IT WAS HELD THAT IT WAS NOT OPEN TO THE AO TO TAKE THE VIEW CONTRARY TO THE REGISTRATION ALREADY GRANTED BY THE CIT AND THEREFORE DISALLOW A PART OF THE CONTRIBUTION. IT WAS POINTED OUT THAT WHEN RECOGNITION CONTINUES IN OPERATION IT WOULD BE IMPLIED THAT THE CONDITIONS LAID DOWN THERE - UNDER ARE SATI SFIED AND ANY PART OF DISALLOWANCE WOULD T A NTAMOUNT TO QUESTIONING THE RECOGNITION. IN OTHER WORDS ENTRIES MADE IN THE REGISTER OF INDEPENDENT BODY SHOULD BE ACCEPTED AS TRUE AND THEY SHOULD NOT BE QUESTIONED WHILE DECIDING THE ISSUE RELATING TO THE MATTER S CONCLUDED BY THE ENTRIES MADE IN SUCH REGISTERS. FROM THIS IT FOLLOWS THAT IF ASSESSEE TRUST IS REGISTERED WITH SEBI AS PER CERTIFICATE GRANTED UNDER REGULATION 7(3) THEN IT SHOULD BE ACCEPTED THAT SUCH CERTIFICATE IS GRANTED AFTER ENSURING THAT CONDITIO NS LAID DOWN BEFORE GRANTING OF SUCH CERTIFICATE ARE FULFILLED. IN OTHER WORDS CONDITIONS LAID DOWN IN SUB - CLAUSE (I ) AND SUB - CLAUSE (II) ARE DEEMED TO BE FULFILLED UNDER EXPLANATION - 1(B) TO SECTION 10(23FB), THE MOMENT RELEVANT CERTIFICATES ARE PRODUCED BEFORE THE AO. THEREFORE, HE IS NOT REQUIRED TO GO INTO VIOLATION OF CONDITIONS, IF ANY, PERTAINING TO THE MATTERS OF GRANT OF SUCH CERTIFICATES. THE AHMEDABAD BENCH OF TRIBUNAL FURTHER OBSERVED THAT, SO LONG AS SEBI DOES NOT FIND ANY DEFAUL T OF ANY CONT RAVENTION OF THE PROVISIONS OF THE SEBI ACT OR SEVI (VCF) REGULATION 1996 THEN IT CAN BE INFERRED THAT THE ASSESSEE TRUST FULFILLS THE CONDITIONS LAID DOWN UNDER THESE REGULATIONS. ITA NO. 8475 / MUM/ 2010 9 THE TRIBUNAL FURTHER EXPRESSED THE VIEW THAT THE AO MAY REPORT THE MATTER OF VIOLATIONS, IF ANY, TO THE SEBI AND IF FINALLY SEBI DOES NOT FIND ANY DEFAULT, THEN THE VIEW OF THE AO THAT THERE IS VIOLATION CANNOT SURVIVE. WE AGREE WITH THE VIEW TAKEN BY THE AHMEDABAD BENCH OF TRIBUNAL IN THE CASE CITED ABOVE. IT IS THE SEBI, WHI CH HAS FINAL SAY TO DETERMINE ABOUT THE VIOLATION OF THE CONDITIONS, AS IT IS THE AUTHORITY COMPETENT TO DEAL WITH THE SAME. IN THE INSTANT CASE, THE AO HAS MADE HIS OWN INTERPRETATION OF THE TERM CORPUS, WHICH WE HAVE FOUND TO BE INCORRECT AS PER THE DEFINITION GIVEN IN THE NEW REGULATION. 10 . IN THE INSTANT CASE , THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE REGISTRATION GRANTED TO THE ASSESSEE AS VENTURE CAPITAL FUND HAS NOT BEEN WITHDRAWN BY THE SEBI . FURTHER, THERE IS NO MATERIAL TO S HOW THAT THE SEBI HAS ALLEGED OR STATED THAT THE ASSESSEE HAS NOT FULFILLED ANY OF THE PRESCRIBED CONDITIONS. HENCE, WE ARE OF THE VIEW THAT THE TAX AUTHORITIES ARE NOT JUSTIFIED IN REJECTING THE CLAIM FOR EXEMPTION U/S 10(23FB) OF THE ACT. 11. WE HA VE NOTICED THAT THE TAX AUTHORITIES HAVE TAKEN THE VIEW THAT THE INTEREST INCOME EARNED FROM FIXED DEPOSITS IN BANKS SHALL NOT BE ENTITLED FOR EXEMPTION U/S 10(23FB) OF THE ACT, SINCE THE BANKS CANNOT BE CONSIDERED TO VENTURE CAPITAL UNDERTAKINGS. FOR ADJU DICATING THIS ISSUE, WE SHALL FIRST EXAMINE THE PROVISIONS OF SECTION 10(23FB), WHICH (AS APPLICABLE TO THE YEAR UNDER CONSIDERATION) READS AS UNDER: - 10 IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR OF ANY PERSON, ANY INCOME FALLING WITHIN ANY OF TH E FOLLOWING CLAUSES SHALL NOT BE INCLUDED --- (23FB) ANY INCOME OF A VENTURE CAPITAL COMPAN OR VENTURE CAPITAL FUND SET UP TO RAISE FUNDS FOR INVESTMENT IN A VENTURE CAPITAL UNDERTAKING. ITA NO. 8475 / MUM/ 2010 10 THE WORDS IN BOLD LETTERS WERE REPLACED BY THE WORDS FROM IN VESTMENT BY FINANCE ACT, 2007 W.E.F. 1.4.2008. THE SCOPE OF EXEMPTION AVAILABLE UNDER THIS SECTION AS WELL AS THE DATE OF APPLICABILITY OF AMENDMENT BROUGHT INTO THE ABOVE SECTION BY FINANCE ACT, 2007 WERE EXAMINED BY THE CO - ORDINATE MUMBAI BENCH OF TRI BUNAL IN THE CASE OF ITO VS. M/S KSHITIJ VENTURE CAPITAL FUND IN ITS ORDER DATED 9 TH MARCH, 2011 PASSED IN ITA NO.2147/MUM/2010 RELAING TO ASSESSMENT YEAR 2006 - 07. THE RELEVANT OBSERVATIONS MADE BY THE MUMBAI BENCH OF TRIBUNAL ARE EXTRACTED BY THE HYDERAB AD BENCH OF TRIBUNAL IN THE CASE OF SMALL IS BEAUTIFUL (SUPRA) AS UNDER: - 12. THE ITAT AHMEDABAD BENCH IN THE SAID CASE OF GUJRAT INFORMATION TECHNOLOGY FUND (SUPRA) FOLLOWED THE DECISION OF ITAT MUMBAI 'A' BENCH IN THE CASE OF ITAO VS. M/S KSHITIJ VENTUR E CAPITAL FUND IN ITA NO.2147/MUM/2010 ASST. YEAR 2006 - 07 PRONOUNCED ON 9THMARCH, 2011 WHEREIN ON SIMILAR FACTS HELD AS UNDER : - '13. WE HEARD BOTH THE PARTIES. THE ISSUE IS WHETHER INTEREST ON TEMPORARY INVESTMENTS OF RS. 16,09,900/ - AND PROFIT ON SALE UN ITS OF MUTUAL FUND OF RS 1,00,91,000/ - IS ENTITLED TO EXEMPTION U/S. 10(23FB). SECTION 10(23FB) AS APPLICABLE TO THE YEAR UNDER APPEAL IS AS UNDER: 'ANY INCOME OF VENTURE CAPITAL COMPANY OR VENTURE CAPI TAL FUND SET UP TO RAISE FUNDS FOR INVESTMENT IN A VENTURE CAPITAL UNDERTAKING.' 14. THUS THE EXEMPTION IN THE CASE OF VENTURE CAPITAL FUND WAS IN RESPECT OF ANY INCOME. THERE IS NO RESTRICTION OR REQUIREMENT REGARDING THE SOURCE OF INCOME FOR GRANT OF EX EMPTION U/S. 10(23FB). IT IS ONLY BY FINANCE ACT , 2007, W.E.F.1ST APRIL, 2008, AN AMENDMENT TO SECTION 10(23FB) WAS BROUGHT ABOUT RESTRICTING THE EXEMP TION UNDER THAT SECTION TO INCOME FROM INVESTMENT BY THE VENTURE CAPITAL FUND IN A VENTURE CAPITAL UNDERTAKING. FOR THIS PURPOSE, THE SAID CLAUSE (C) OF EXPLANATION 1 HAS ALSO BEEN AMENDED TO DEFINE 'VENTURE CAPITAL UNDERTAKING'. THIS AMENDMENT WAS MADE EF FECTIVE FROM 1.4.2008. BY NO STRETCH OF IMAGINATION CAN THIS AMENDMENT CAN BE CONSIDERED AS CLARIFICATORY APPLICABLE TO EARLIER ASSESSMENT YEAR. THE MEMORANDUM EXPLAINING THE ITA NO. 8475 / MUM/ 2010 11 AMENDMENT TO THE FINANCE BILL, 2007 AS WELL AS THE CBDT CIRCULAR EXPLAINING THE P ROVISIONS OF THE FINANCE ACT , 2007 CLARIFY THAT THE AMENDMENT PROPOSED TO SECTION 10(23FB) WAS TO RESTRICT THE SCOPE OF INCOME FOR WHICH EXEMPTION UNDE R THAT SECTION WAS AVAILABLE. HENCE THIS AMENDMENT CANNOT BE CONSIDERED AS CLARIFICATORY BUT MUST BE CONSIDERED AS PROSPECTIVE IN EFFECT. IT IS NOT INITA NOS. 1004 & 1005/HYD/12 SMALL IS BEAUTIFUL DISPUTE THAT THE ASSESSEE IS OTHERWISE ELIGIBLE FOR EXEMPTI ON U/S.10(23FB). HENCE FOR THE YEAR UNDER APPEAL, AS PER THE PROVISIONS OF SECTION 10(23FB) AS APPLICABLE TO THE ASSESSMENT YEAR, ANY INCOME OF THE VENTURE CAPITAL FUND IS EXEMPT. HENCE WE CONFIRM THE OR DER OF THE CIT(A) AND UPHOLD HIS DIRECTION THAT THAT INTEREST ON TEMPORARY INVESTMENTS OF RS. 16,09,900/ - AND PROFIT ON SALE UNITS OF MUTUAL FUND OF RS 1,00,91,000/ - IS ENTITLED TO EXEMPTION U/S.10(23FB). 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED.' 13. THE ABOVE VIEW IS ALSO SUPPORTED BY CBDT CIRCULAR OF 2008 WHICH CLARIFIES THE POSITION AS UNDER : - 'THE CBDT CIRCULAR NO.3 OF 2008 THIS CASE HAS BEEN CLARIFIED. EXEMPTION FOR CERTAIN INCOME OF A VENTURE CAPITAL COMPANY OR VENTURE CAPITA L FUND. 14.2 CLAUSE (23FB) OF SECTION 10 PROVIDES EXEMPTION IN RESPECT OF ANY INCOME OF A VENTURE CAPITAL COMPANY OR VENTURE CAPITAL FUND SET UP TO RAISE FUNDS FOR INVESTMENT IN A VENTURE CAPITAL UNDERT AKING. SUCH VENTURE CAPITAL UNDERTAKING HAS BEEN DEFINED IN CLAUSE(C) OF EXPLANATION 1 TO CLAUSE (23FB) TO MEAN A VENTURE CAPITAL UNDERTAKING REFERRED TO IN THE SECURITIES AND EXCHANGE BOARD OF INDIA (VENTURE CAPITAL FUNDS) REGULATIONS, 1996, MADE UNDER TH E SECURITIES AND EXCHANGE BOARD OF INDIA ACT , 1992, AND NOTIFIED AS SUCH IN THE OFFICIAL GAZETTE BY THE BOARD FOR THE PURPOSES OF THE CLAUSE. WITH A VIEW TO MAKE THE TAX BENEFIT MORE FOCUSED AND TO CHANN ELIZE EXISTING AS WELL AS FUTURE INVESTMENTS IN KEY, RISK PRONE THRUST AREAS CLAUSE (23FB) HAS BEEN AMENDED WHEREBY SUCH EXEMPTION WILL NOW BE AVAILABLE ONLY IN RESPECT OF INCOME OF A VENTURE CAPITAL COMPANY OR VENTURE CAPITAL FUND FROM INVESTMENT IN A VEN TURE CAPITAL UNDERTAKING .................................... ITA NO. 8475 / MUM/ 2010 12 14.3 APPLICABILITY : THIS AMENDMENT WILL TAKE EFFECT FROM THE 1 ST DAY OF APRIL, 2008, AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASSESSMENT YEAR 2008 - 09 AND SUBSEQUENT ASSESSMENT YEAR. 1 2. FOLLOWING THE DECISIONS RENDERED BY THE CO - ORDINATE BENCHES OF TRIBUNAL, WE ALSO HOLD THAT THE AMENDMENT BROUGHT INTO SECTION 10(23FB) BY THE FINANCE ACT, 2007 WITH EFFECT FROM 1.4.2008 SHALL HAVE PROSPECTIVE OPERATION . IN OUR VIEW, IT MAY NOT BE APP ROPRIATE TO EXAMINE THE SCOPE OR EFFECT OF AMENDMENT BROUGHT IN THE ABOVE SECION W.E.F. 1.4.2008. SUFFICE TO SAY THAT THE INTEREST INCOME OF THE ASSESSEE SHALL ALSO BE ENTITLED TO EXEMPTION U/S 10(23FB) OF THE ACT FOR THE YEAR UNDER CONSIDERATION. HENCE A NY INCOME OF THE VENTURE CAPITAL FUND SET UP TO RAISE FUNDS FOR INVESTMENTS SHALL BE EXEMPT FOR THE YEAR UNDER CONSIDERATION. 13. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE DENIED EXEMPTION U/S 10(23FB) OF THE A CT AND FURTHER THE ENTIRE INCOME OF THE ASSESSEE SHALL BE EXEMPT UNDER THAT SECTION. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD.CIT(A) AND DIRECT THE AO TO GRANT EXEMPTION U/S 10(23FB) OF THE ACT. 14 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 8TH JAN, 2016 . SD SD ( / SANDEEP GOSAIN) ( . . / B.R.BASKARAN) /JUDICIAL MEMBER /ACCOUNTANT MEMBER MUMBAI ; DATED .. 8TH , JAN 2016 . . ./ SRL , SR. PS ITA NO. 8475 / MUM/ 2010 13 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / TH E RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI