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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI KULDIP SINGH & SHRI GAGAN GOYAL
ORDER PER GAGAN GOYAL, A.M: These two appeals by assessee are directed against the order of Commissioner of Income Tax (Appeals)-22, Mumbai [for short ‘CIT(A)’] under section 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) vide orders dated 24.07.2018 & 25.07.2018 for Assessment Years (AY) 2012-13& 2013- 2 & 5830/Mum/2018 UTI Asset Management Company Ltd. 14respectively. We shall first take up appeal of assessee for A.Y. 2012-13 as lead case. The assessee has raised the following grounds of appeal: “The Appellant, objects to the order dated 24 July 2018 passed by the learned Commissioner of Income-tax (Appeals) - 22 [learned CIT-(A)], Mumbai, under section 250 of the Income Tax Act, 1961 (the Act), for the aforesaid assessment year on the following among other grounds:
1. Disallowances of expenses relating to funds 1.1 The learned CIT-(A) erred in confirming the disallowance of proportionate share of expenses amounting to Rs. 3,75,70,106 from Ascent India Fund and Ascent India Fund III (collectively hereinafter referred to as the 'Funds"). 1.2 The learned CIT-(A) further erred in stating that the proportionate loss of Income from Other Sources of the Fund allocated to the Appellant cannot be allowed to be set off against its income from other sources as the expenses were not incurred for earning of income under the head "income from other sources". 1.3 without prejudice to the above, the learned CIT-(A) erred in not appreciating that the proportionate share of the income / loss were includible irrespective of the fact whether the Appellant earned any income from other sources. 1.4. The Appellant prays that the learned Assessing Officer be directed to delete the disallowance of Rs.3, 75, 79,106.
2. General 2.1 Each of the above grounds of appeal is without prejudice to the other. 2.2 The Appellant craves leave to add to, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as it may be advised.”
2. In ITA No. 5830/Mum/2018 for A.Y. 2013-14, the assessee has raised the following grounds of appeal: “The Appellant, objects to the order dated 25 July 2018 passed by the learned Commissioner of Income-tax (Appeals)-22 ['learned CIT-(A')] under section 250 of the Income Tax Act, 1961 (the Act), Mumbai, for the aforesaid assessment year on the following among other grounds:
1. Disallowances of expenses relating to funds 3 & 5830/Mum/2018 UTI Asset Management Company Ltd. 1.1 The learned CIT-(A) erred in confirming the disallowance of proportionate share of expenses amounting to Rs. 4,09,41,230 from Ascent India Fund and Ascent India Fund III (collectively hereinafter referred to as the 'Funds'). 1.2 The learned CIT-(A) further erred in stating that the proportionate loss of Income from Other Sources of the Fund allocated to the Appellant cannot be allowed to be set off against its income from other sources as the expenses were not incurred for earning of income under the head income from other sources'. 1.3 without prejudice to the above, the learned CIT-(A) erred in not appreciating that the proportionate share of income / loss were includible irrespective of the fact whether the Appellant earned any income from other sources. 1.4 Without prejudice to the above, the learned CIT-(A) failed to appreciate that the Appellant's proportionate share of income / loss is chargeable to tax in it hands in accordance with the provisions of sections 160 to 164 of the Act. 1.5 The Appellant prays that the learned Assessing Officer be directed to delete the disallowance of amounting Rs. 4, 09, 41,230.
General 2.1 Each of the above grounds of appeal
is without prejudice to the other. 2.2 The Appellant craves leave to add to, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as it may be advised.”
3. Brief facts of the case are that assessee is an asset management company and in the business of fund management with the object to carry on activities of raising funds for and to render investment management services to schemes of UTI mutual funds, SEBI registered mutual fund. For AY 2012-13 the assessee company filed its return of income on 13-09-2012 declaring a total income at Rs 131,30,85,290/-. The case of the company selected for scrutiny u/s 143(2).
4. In the assessment proceedings u/s 143(3) income of the assessee was assessed at Rs 135,06,64,392/-. During the assessment proceedings AO disallowed assesses proportionate share of expenses amounting to Rs 3, 75, 4 & 5830/Mum/2018 UTI Asset Management Company Ltd. 79,106/- from Ascent India Fund (AIF) and Ascent India Fund III (AIF-III). Against this disallowance assessee preferred an appeal before the Ld. CIT (A) - 22, Mumbai, here also appeal of the assessee was dismissed and order of the AO is sustained.
5. Against this order of Ld.CIT (A), assessee preferred this appeal before ITAT. We have gone through the order of AO, Ld.CIT (A) and various submissions of the assessee along with case-laws and paper-book relied upon by the assessee.
6. To understand the nature of transaction and the claim of the assessee we are coming forward with our observations of the facts pertinent to the matter under consideration as under: I. Assessee Company was incorporated in Nov 2002 under the companies Act 1956 with the object to carry on activities of rendering investment management services to the schemes of UTI mutual fund. II. During the year under consideration company earned Rs 36,393/- from AIF and Rs 1, 67,997/- from AIF-III under the head short term capital gains. III. On the one hand assessee submits that since AIF and AIF-III are the scheme of a venture capital fund, the provision of the act [i.e. section 10(23FB) and sec 115U] as applicable to venture capital funds are applicable to the schemes. IV. Under the provision of 10(23FB), as applicable for AY 2012-13, any income of a venture capital fund from investment in venture capital undertaking is not considered as a taxable income in the hands of the venture capital fund. Further, the term “venture capital undertaking” is defined as to mean a domestic company whose shares are not listed on a recognised stock 5 & 5830/Mum/2018 UTI Asset Management Company Ltd. exchange in India and which is engaged in the business of certain specified sectors. V. Further, section 115U(I) , as applicable to AY-2012-13 reads as under: “Notwithstanding anything contained in any other provisions of this Act, any income 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 received by such person had he made investments directly in the venture capital undertaking” VI. The appellant company submits that during the financial year 2011-12, the investments made by AIF and AIF-III were not in a qualified venture capital undertaking. Accordingly, the income received by AIF and AIF-III was not eligible for the pass-through status granted by sec 10(23FB) read with section 115U of the Act. VII. The submissions of the assessee with reference to AIF and AIF-III are contradictory in nature. As the same can be observed vide Para IV and VI. It is further observed that how an asset management company (AMC) can invest in a non-qualified venture capital undertaking as observed vide Para VI above. VIII. Assessee further submitted that its income/loss from AIF and AIF-III should be taxed in accordance with section 160 to 164 of the act which provide for the taxability of a private trust. Under the provisions of sec 161 the income received from the funds is taxable in the hands of the beneficiary.
6 & 5830/Mum/2018 UTI Asset Management Company Ltd. IX. It is further observed from the balance-sheet of the assessee that in FY 2011-12 assessee invested Rs 119.6 cr. as contribution to AIF and AIF-III and Rs 1180.6 cr. in FY 2012-13. In AY 2012-13 assessee declared income under the head short term capital gains from AIF and AIF-III amounting to Rs 2,04,389/- whereas in AY 2013-14 the same figure is NIL. It is pertinent to mention that income from AIF and AIF-III assessee shown under the head short-term capital gains but to manage the corpus with AIF and AIF-III expenses it claimed under the head income from other sources.
We have gone through the relevant SEBI certificates, trust deed and private placement memorandum document. We have considered the letter received from AIF and AIF-III also allocating proportionate share of management fee and other expenses amounting to Rs 3,75,79,106/- for AY 2012-13 and Rs 4,09,41,230/- for AY 2013-14. To substantiate its claim assessee relied upon the decision of the honourable apex court in the case of CIT vs Rajendra Prasad Moody (1978) 115 ITR 519 (S.C) , wherein it was observed that the deduction of the expenditure cannot be held to be conditional upon the making or earning of the income.
With due regard to the decision laid down by the honourable Apex court (supra) is not applicable to the facts of the case as the same was rendered with reference to income under the head business and profession secondly after going through the balance-sheet of AIF and AIF-III it is observed that the major activity of the funds are of making investments and selling such investments the income from which will not fall under the head income from other sources.
7 & 5830/Mum/2018 UTI Asset Management Company Ltd. 9. Moreover, if we analysed the terminology of the head income from other sources, it’s a residuary head of income meaning thereby it can never have any loss. Secondly, the amount of loss expenditure claimed under the head income from other sources doesn’t have any nexus with any of the income declared under the head other sources. In view of the above order of Ld.CIT (A) is sustained and all the grounds raised by the assessee are dismissed as the same are interlinked. In the result appeal of the assessee is dismissed.
10. In the result, appeal filed by the assessee is dismissed.
11. As the facts of ITA No. 5830/Mum/2018 (A.Y. 2013-14) is similar to (A.Y. 2012-13). Hence, the same is also dismissed. Order pronounced in the open court on 27th day of December, 2022.