TVS Shriram Growth Fund, CHENNAI V. ITO, CHENNAI

MA 311/CHNY/2017

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 6418 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 04-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 16-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NATARAJ SR
• Assessee Lawyers: R VIJAYARAGHAVAN
• Section: 10; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI ... , . !' , # $ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER %% / M.P. NOS.310 & 311/CHNY/2017 (IN I.T.A. NOS.981 & 982/MDS/2016) & '& / ASSESSMENT YEARS : 2009-10 & 2010-11 M/S TVS SHRIRAM GROWTH FUND, NO.249A, AMBUJAMMAL STREET, OFF. TTK ROAD, NEAR ALWARPET POST OFFICE, ALWARPET, CHENNAI - 600 018. PAN : AABIT 5582 H V. THE INCOME TAX OFFICER, NON CORPORATE WARD 3(5), CHENNAI - 600 034. ()*& /PETITIONER) ()+*,/ RESPONDENT) )*& . / /PETITIONER BY : SH. R. VIJAYARAGHAVAN, ADVOC ATE )+*, . / / RESPONDENT BY : SHRI NATARAJ, SR. AR 0 . 1# / DATE OF HEARING : 16.02.2018 2!' . 1# / DATE OF PRONOUNCEMENT : 04.04.2018 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THE ASSESSEE HAS FLED THE PRESENT MISCELLANEOUS P ETITIONS ON THE GROUND THAT THERE IS AN ERROR IN THE ORDER O F THIS TRIBUNAL DATED 07.06.2017. 2 M.P. NO.310 & 311/CHNY/17 2. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THIS TRIBUNAL BY AN ORDER DATED 07.0 6.2017, FOUND THAT THE ASSESSEE IS A DETERMINATE TRUST AND THE IN COME OF THE ASSESSEE HAS TO BE ASSESSED IN THE HANDS OF THE BEN EFICIARIES. ACCORDING TO THE LD. COUNSEL, THIS TRIBUNAL FURTHER FOUND THAT VENTURE CAPITAL FUND IS A PASS THROUGH VEHICLE IN R ESPECT OF THE INVESTMENT MADE TO VENTURE CAPITAL UNDERTAKING. RE FERRING TO CLAUSE (23FB) OF SECTION 10 OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'), ACCORDING TO THE LD. COUNSEL, THIS TRIB UNAL FOUND THAT THE INVESTOR WHO RECEIVED THE INCOME FROM VENTURE CAPIT AL UNDERTAKING AS PER PROVISIONS OF SECTION 10(23FB) OF THE ACT IS EXEMPTED FROM TAXATION. ACCORDING TO THE LD. COUNSEL, SECTION 11 5U OF THE ACT IS INTENDED TO GRANT TAX CONCESSION TO THE RECIPIENT O F INCOME FROM VENTURE CAPITAL UNDERTAKING AND SUCH INCOME IN THE HANDS OF INVESTOR SHALL BE CHARGEABLE TO TAX AS IF IT WERE I NCOME FROM VENTURE CAPITAL UNDERTAKING MADE DIRECTLY. THEREFORE, IT I S OBVIOUS FROM THE ORDER OF THIS TRIBUNAL THAT INTEREST ON THE INVESTM ENT RECEIVED BY THE BENEFICIARIES CANNOT BE ASSESSED IN THE HANDS OF TH E ASSESSEE AND IT HAS TO BE DIRECTLY ASSESSED IN THE HANDS OF THE BENEFICIARIES AS IF THE INVESTMENT WAS MADE TO VENTURE CAPITAL UNDERTAK ING. 3 M.P. NO.310 & 311/CHNY/17 3. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTE D THAT WHILE GIVING EFFECT TO THE ORDER OF THIS TRIBUNAL, THE AS SESSING OFFICER MISUNDERSTOOD THE OBSERVATION MADE BY THIS TRIBUNAL AND ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE ON THE GROUND THA T IN CASE THE INCOME FROM DEPOSIT WAS NOT CORRECTLY ADMITTED IN T HE HANDS OF THE BENEFICIARIES OR NOT ADMITTED, IT HAS TO BE ASSESSE D IN THE HANDS OF THE ASSESSEE TRUST. ACCORDING TO THE LD. COUNSEL, THIS IS CONTRADICTORY TO THE CATEGORICAL OBSERVATION MADE B Y THIS TRIBUNAL. AT PARA 7.2, THIS TRIBUNAL FOUND THAT THE ASSESSEE DID NOT APPORTION THE EXPENDITURE IN THE PROFIT & LOSS ACCOUNT RELATI NG TO INCOME UNDER THE HEAD INTEREST AND DIVIDEND INCOME. T HEREFORE, ACCORDING TO THE LD. COUNSEL, AFTER MAKING CLEAR OB SERVATION AT PARA 7.1, THIS TRIBUNAL GIVES DIRECTION TO THE ASSESSING OFFICER TO VERIFY WHETHER THE EXPENDITURE WAS APPORTIONED IN RESPECT OF VARIOUS HEADS OF INCOME. ACCORDING TO THE LD. COUNSEL, THE ASSESABILITY OF THE INCOME OF THE FUND IN THE HANDS OF THE BENEFICI ARIES WAS CONCLUDED AT PARA 7.1. THE ASSESSING OFFICER MISCO NSTRUED THE OBSERVATION MADE BY THIS TRIBUNAL AT PARAS 7.1 AND 7.2 AND ISSUED A SHOW CAUSE NOTICE TO ASSESS THE INTEREST INCOME IN THE HANDS OF THE FUND. ACCORDING TO THE LD. COUNSEL, FUND IS A PAS S THROUGH VEHICLE AS OBSERVED BY THIS TRIBUNAL, AND TAX HAS TO BE ASS ESSED ONLY IN THE 4 M.P. NO.310 & 311/CHNY/17 HANDS OF THE RESPECTIVE BENEFICIARIES, THEREFORE, T HE ASSESSING OFFICER IS NOT CORRECT IN PRESUMING THAT THE INTERE ST INCOME HAS TO BE ASSESSED IN THE HANDS OF THE ASSESSEE-FUND. 4. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, FURTHER SUBMITTED THAT MORE THAN 600 BENEFICIARIES ARE IN THE ASSESSEE-TRUST. OUT OF WHICH, 50% OF THE BENEFICIA RIES ARE INSTITUTIONS, THEREFORE, ACCORDING TO THE LD. COUNS EL, THE ASSESSEE MAY NOT BE ABLE TO PROVIDE DETAILS OF THE RETURN FI LED BY EACH OF THE BENEFICIARIES. HOWEVER, THE ASSESSING OFFICER MAY BE IN A BETTER POSITION TO SEEK INFORMATION FROM THE RESPECTIVE BE NEFICIARIES IN EXERCISE OF HIS STATUTORY POWER / AUTHORITY. THERE FORE, THE LD.COUNSEL SUBMITTED THAT THIS TRIBUNAL MAY CLARIFY WHETHER THE ASSESSEE-FUND IS A PASS THROUGH VEHICLE FOR INTERES T INCOME FROM INVESTMENT MADE BY BENEFICIARIES OR THE INTEREST IN COME IS TO BE ASSESSED IN THE HANDS OF THE ASSESSEE-FUND ITSELF. 5. ON THE CONTRARY, SHRI NATARAJ, THE LD. DEPARTMEN TAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE IS A PR IVATE DISCRETIONARY TRUST AND REGISTERED AS A VENTURE CAP ITAL FUND WITH SEBI. THEREFORE, ACCORDING TO THE LD. D.R., THE AS SESSEE IS ELIGIBLE FOR PASS THROUGH STATUS AS PROVIDED IN SECTION 10(2 3FB) OF THE ACT. 5 M.P. NO.310 & 311/CHNY/17 THE LD. D.R. FURTHER SUBMITTED THAT THE ASSESSEE HA S EARNED INCOME FROM NON-VENTURE CAPITAL UNDERTAKING INVESTM ENT WHICH MAY NOT BE ELIGIBLE FOR PASS THROUGH STATUS UNDER SECTI ON 10(23FB) OF THE ACT. REFERRING TO SECTION 10(23FB) AND SECTION 115U OF THE ACT, THE LD. D.R. POINTED OUT THAT THE PASS THROUGH STATUS IS APPLICABLE ONLY IN RESPECT OF INCOME OF THE VENTURE CAPITAL FUND FROM INVESTMENT IN VENTURE CAPITAL UNDERTAKING. IN THE CASE BEFORE US, ACCORDING TO THE LD. D.R., THE INTEREST INCOME WAS EARNED FROM FIXED DEPOSIT, THEREFORE, IT IS NOT AN INCOME EARNE D FROM INVESTMENT IN VENTURE CAPITAL UNDERTAKING, THEREFORE, THE SAME HAS TO BE ASSESSED ONLY IN THE HANDS OF THE ASSESSEE-TRUST / FUND. 6. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER SUBM ITTED THAT THIS TRIBUNAL DIRECTED THE ASSESSING OFFICER TO EXA MINE WHETHER THE INTEREST INCOME WAS ASSESSED / RIGHTLY ASSESSED IN THE HANDS OF THE BENEFICIARIES. ACCORDING TO THE LD. D.R., IT WAS A LSO CATEGORICALLY FOUND BY THIS TRIBUNAL THAT EXPENSES RELATING TO DI VIDEND INCOME CANNOT BE SET OFF AGAINST INTEREST INCOME. THEREFO RE, ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER HAS RIGHTLY FOU ND THAT THE INTENTION OF THIS TRIBUNAL WAS TO GRANT RELIEF ONLY IN RESPECT OF INTEREST INCOME WHICH IS OFFERED TO TAX BY THE RESPECTIVE BE NEFICIARIES. IN CASE OF NON-ADMISSION OR INCORRECT ADMISSION OF INT EREST INCOME, 6 M.P. NO.310 & 311/CHNY/17 ACCORDING TO THE LD. D.R., IT HAS TO BE ASSESSED ON LY IN THE HANDS OF THE ASSESSEE-FUND / TRUST, THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY UNDERSTOOD THE ORDER OF THIS TRIBUNAL AND I SSUED SHOW CAUSE NOTICE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. PRIMA FACIE IT APPEARS THAT THERE IS A MISUNDERSTANDING IN APPRECI ATING THE ORDER OF THIS TRIBUNAL. THIS TRIBUNAL AT PARA 6.7OF ITS ORDER DATED 07.06.2017 SPECIFICALLY FOUND THAT THE ASSESSEE-TRU ST IS A DETERMINATE TRUST. AT PARA 7, REFERRING TO THE CLA IM OF THE ASSESSEE, THIS TRIBUNAL OBSERVED THAT THE INTEREST INCOME OF THE TRUST SHOULD BE ASSESSED ONLY IN THE HANDS OF THE BENEFICIARIES. T HE TRIBUNAL HAS MADE ELABORATE DISCUSSION AT PARA 7.1. AT PARA 7.1 , THIS TRIBUNAL FOUND THAT SECTION 10(23FB) OF THE ACT IS AN ENABLI NG PROVISION FOR TAXING INVESTOR WHO RECEIVES INCOME FROM VENTURE CA PITAL FUND THIS TRIBUNAL SPECIFICALLY OBSERVED THAT SECTION 11 5U OF THE ACT MANDATES THAT THE INCOME SHALL BE FURTHER DISTRIBUT ED TO THE INVESTOR AND TAXABLE IN THE HANDS OF INVESTOR BY TREATING TH E SAME INCOME LIKE LONG TERM CAPITAL GAIN, SHORT TERM CAPITAL GAI N, DIVIDEND OR OTHER INCOME SUCH AS INTEREST ETC. THEREFORE, THE OBSERV ATION OF THE ASSESSING OFFICER IN THE SHOW CAUSE NOTICE THAT THE INTENTION OF THE 7 M.P. NO.310 & 311/CHNY/17 ITAT IS TO GRANT RELIEF ONLY IN RESPECT OF INTEREST INCOME WHICH IS OFFERED FOR TAXATION BY THE BENEFICIARIES IS NOT CO RRECT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE INTENTION OF THE ITAT IN THE ORDER DATED 07.06.2017 IS IN RESPECT OF THE ENTIRE INCOME RECEIVED FROM VARIOUS SOURCES AND DISTRIBUTED TO INVESTORS H AS TO BE TAXED AS SUCH IN THE HANDS OF THE BENEFICIARIES, THEREFORE, THERE IS NO NEED FOR ANY EXCLUSION IN RESPECT OF THE INCOME ADMITTED BY THE BENEFICIARIES OR NOT ADMITTED BY THE BENEFICIARIES. 8. SINCE THE DETAILS OF THE INCOME AND EXPENDITURE IS NOT AVAILABLE IN THE PROFIT & LOSS ACCOUNT OR IN THE DO CUMENT FILED BEFORE THIS TRIBUNAL, THIS TRIBUNAL REMITTED BACK THE MATT ER TO THE FILE OF THE ASSESSING OFFICER FOR A LIMITED VERIFICATION TO COL LECT INFORMATION FROM BENEFICIARIES AND ALLOW PASS THROUGH STATUS IN THE HANDS OF THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER MISUNDER STOOD THE DIRECTION OF THE TRIBUNAL BY PICKING UP SAME WORDS HERE AND THERE AT PARA 7.2 AT PAGE 34 OF THE ORDER. HENCE, THIS TRIB UNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER IS NO T CORRECT IN SAYING THAT IN CASE THE INCOME IS NOT ADMITTED / IN CORRECTLY ADMITTED, IT HAS TO BE ASSESSED IN THE HANDS OF THE ASSESSEE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHETHER THE INCOME I S ADMITTED BY THE RESPECTIVE BENEFICIARIES OR NOT, SINCE PASS THR OUGH STATUS WAS 8 M.P. NO.310 & 311/CHNY/17 GIVEN TO THE ASSESSEE-FUND, THE ENTIRE INCOME HAS T O BE ASSESSED ONLY IN THE HANDS OF THE BENEFICIARIES AND NOT IN T HE HANDS OF THE TRUST / FUND. THE ORDER OF THIS TRIBUNAL IS MODIFI ED / CLARIFIED ACCORDINGLY. 9. IN THE RESULT, BOTH THE MISCELLANEOUS PETITIONS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED COURT ON 4 TH APRIL, 2018 AT CHENNAI. SD/- SD/- (. !' ) ( ... ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) # / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 4 TH APRIL, 2018. KRI. . )15% 6%'1 /COPY TO: 1. )*& / PETITIONER 2. )+*, /RESPONDENT 3. 0 71 () /CIT(A) 4. 0 71 /CIT 5. %8 )1 /DR 6. 9& : /GF.