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Income Tax Appellate Tribunal, DELHI ‘A’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI KULDIP SINGH
disposed off by this common order for the sake of convenience brevity.
At the very outset, the ld. counsel for the assessee pointed out that identical issues were adjudicated by the Tribunal in assessee’s own case for Assessment Years 2006-07 and 2007-08 in ITA Nos.
5705/DEL/2010 and 3284/DEL/2012 reported in 158 ITD 62.
It is the say of the ld. counsel for the assessee that in earlier Assessment Years, similar additions were deleted by the Tribunal and since the Revenue has not approached the Hon'ble High Court u/s 260A of the Act, the order of the Tribunal has attained finality.
On the other hand, the ld. DR could not bring any distinguishing decision in favour of the Revenue.
We have given thoughtful consideration to the orders of the authorities below and have also perused the orders of the co-ordinate bench [supra]. We find force in the contentions of the ld. counsel for the assessee. In for Assessment Year 2008-09, the substantive grievances of the assessee are as under:
“Ground No. 1
Based on the facts and circumstances of the case, the learned AO has erred in law and on facts in not allowing the exemption under Section 10(34) of the Act claimed by the appellant on its share of dividend income of Rs. 34,47,414 out of dividend income received by SARA Fund (venture capital Fund -VCF).
Ground No.2
Based on the facts and circumstances of the case, the learned Assessing Officer has erred in law and on facts, in disallowing expenses of Rs. 9,03,566 by taxing the share of the appellant in interest income from VCF under the head "Other Sources" on gross basis and not on net basis in disregard of the fact that income of a VCF can be passed on to its nly after adjusting the expenses it incurred out of the funds provided by the a earn such income.
Ground No 3
Based on the facts and circumstances of the case, the learned Assessing Officer has erred in law and on facts, in holding that the appellant’s share in the amount of Rs. 12,28,594 [5,50,00,000-5,37,71,406] @22.73% i.e. Rs. 2,79,260 was assessable in the appellant’s hands as “Income from other sources”.
In for Assessment Year 2006-07, the grievances of the assessee read as under:
“Ground No. 1
(i) Based on the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in not allowing the exemption under Section 10(34) of the Act claimed by the appellant on its share of dividend income of Rs. 43,48,571 out of dividend income received by SARA Fund (venture capital Fund - VCF).
(ii) Based on the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in failing to appreciate that the companies from which SARA Fund had earned dividend had already paid additional income-tax as required under Section 115-0 of the Act and SARA Fund was not required to pay additional income-tax for the second time on the same income. Ground No. 2
Based on the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts, in disallowing expenses of Rs. 1, 13,11,955 by taxing the share of the appellant in interest income from VCF under the head "Other Sources" on gross basis and not on net basis in disregard of the fact that income of a VCF can be passed on to its investors only after adjusting the expenses it incurred out of the funds provided by the investors, to earn such income. Ground No. 3
(i) Based on the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in holding that out of a total distribution of Rs. 176,000,000 during the year, only Rs. 119,738,454 was out of income of the VCF while the income component of the distribution was the amount of Rs. 142,134,265.
(ii) Based on the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts and has failed to appreciate that out of the total distribution made in the previous year the income component in accordance with the statutory declaration u/s 11 5U(2) made by SARA Fund was alone assessable in the hands of the appellant.
(iii) Based on the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in holding that the appellant's share in the payment of Rs. 56,261,546 [176,000,GOO- 119,738,454] @ 22.73% i.e. Rs. 12,788,250/ was assessable in the appellant's hands as "Income from other sources".
4/1 (iv) Based on the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts, material evidence placed on record i.e. notes to the computation of income. Form 64 and audited Financial Statements of SARA Fund.
(v) Based on the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in not appreciating that in terms of the provisions of Section 115U(2) of the Act, the appellant could not provide or furnish information different from and/or conflicting with the statutory declaration in Form 64 furnished to the income-tax authority by the venture capital fund (SARA Fund) and was bound by the stand adopted by SARA Fund.
(vi) Based on the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in not appreciating that no computation mechanism has been provided by the Act for offering the income chargeable to tax under the provisions of Section 115U of the Act.”
In for Assessment Year 2006-07, the grievances of the assessee read as under:
“On the facts and circumstances of the case and in law, the Learned Assessing Officer (AO') has erred in passing the assessment order u/s 143(3) r.w.s 144C of the Income Tax Act, 1961 ('the Act') and thereby approved by the Hon'ble Dispute Resolution Panel (DRP).
Each of the ground is referred to separately, which may kindly be considered independent of each other. Ground No. I
Based on the facts and circumstances of the case, the learned Assessing Officer has erred in law and on facts in not allowing the exemption under Section 10(34) of the Act claimed by the assessee on the dividend income of Rs. 30,39,471 received by the assessee as its share from SARA Fund, a Venture Capital Fund (VCF) out of the dividend income of the nature referred to in Section 10(34) of the Act.
Ground 0.2
Based on the facts and circumstances of the case, the learned Assessing Officer has erred in law and on facts, in disallowing expenses of Rs. 37,94,980 by taxing the share of the assessee in interest income from VCF under the head "Other Sources" on gross basis and not on net basis in disregard of the fact that income of a VCF can be passed on to its investors only after adjusting the expenses it incurred out of the funds provided by the investors, to earn such income. Ground No. 3
Based on the facts and circumstances of the case, the learned Assessing Officer has erred in law and on facts, in holding that the assessee's share in the amount of Rs. 51,60,098 [231,000.GOO- 225,839,902] @ 22.73% i.e. Rs. 11,72,890/ was assessable in the assessee's hands as "Income from other sources"
On a perusal of the above grounds for the year under consideration and grounds in appeal before the Tribunal in Assessment Years 2006-607 and 2007-08, we find that the grievances are identical, underlying facts in issues are same, though the quantum may differ.
Ground No. 1 is adjudicated as under.
This issue has been decided by the co-ordinate bench at para 14 to 14.6 of its order. The relevant findings of the co-ordinate bench read as under:
“However, we are of the considered view that the A.O. as well as Ld. CIT(A) have taken a wrong view by holding that the assessee cannot grow tax-free income u/ss 10(34) and 10(35) of the Acts unless additional tax has been paid as per the provisions of Sections 115-0 and 115-R of the Act and as such the exemption claimed u/ss 10(34) and 10(35) is to be allowed only if the dividend income distributed as per the provisions of Sections 115-0 and 115-R whereas, the conditions laid down u/s 115-0 to avail the exemption u/s 10(34), is to be complied with at the level of venture capital undertaking and not at the stage when the investor, the assessee in this case, received the dividend income from VCF. So, the assessee is entitled for exemption u/s 10(34) of the Act and its share of dividend income is out of dividend income received by SARA fund. When the company with which SARA Fund has been invested, had already paid additional income tax on the earned dividend as required u/s 115-0 of the Act, SARA fund was not required to pay additional income tax second time on the same income. Consequently, grounds No. 1(1) and 1(11) of and Ground No. l of I.T.A. No. 5705/Del/2010 are determined in favour of the assessee.”
Respectfully following the order of the co-ordinate bench in Assessment Year 2006-07 [supra], we decide Ground No. 1in favour of the assessee and against the Revenue.
Grievance raised vide Ground No. 2 has been considered by the co-ordinate bench in earlier Assessment Year at para 15 of its order and para 15.4 as under:
“15.4 The issue in controversy is again required to be determined in consonance with the provisions contained u/s 115U discussed in the preceding paragraphs which mandates that venture capital company and venture capital fund is given the status of pass through vehicle for the purpose of treatment of income received on account of investment made in the venture capital undertaking. A person who makes investment in the venture capital company or venture capital fund, the assessee in this case, earned the income out of such investment which income shall be treated firstly as investment directly in the venture capital undertaking and venture capital fund or venture capital company is only a pass through vehicle. So, in these circumstances, the assessee-company is entitled to book expenditure incurred by SARA fund as if the same has been incurred by the assessee directly in the venture capital fund. So, we are of the view that the expenses of Rs. 1,13,11,955/- disallowed by Ld. CIT(A) by taking the shares of the assessee in interest income from VCF under the head other sources on gross basis and not the net basis, which requires to be determined by treating the same nature of income like long term capital gain, short term capital gain, dividend and other income such as interest etc. So, Grounds No. 2 of both the appeals are determined in favour of the assessee.”
Before us, the ld. DR vehemently stated that the assessee has not explained how the expenses of Rs. 9,03,566/- has been arrived at. We do not find any merit in this contention of the ld. DR. We find that the assessee has furnished complete details of computation which are exhibited at pages 100 to 102 of the paper book. Since there is no difference in the facts from earlier Assessment Years, respectfully following the findings of the co-ordinate bench, Ground No. 2 is also decided in favour of the assessee and against the Revenue.
Grievance raised vide Ground No. 3 has also been considered by the co-ordinate bench in earlier Assessment Year at para 16 of its order [supra]. Relevant findings of the order read as under:
“16.3 From the perusal of Form 64 and balance sheet / revenue account of SARA fund, it is proved that distribution of Rs. 17,60,00,000/- qua A.Y. 2006-07 and Rs. 11,72,890/- qua A.Y. 2007-08 was made to its beneficiaries as per the number of units purchased by each beneficiary, which fact is explained in the foot note 3 of Form 64 and it also appears in the balance sheet / revenue account of SARA fund and the assessee has rightly disclosed the income at Rs. 119738454/- by subtracting the amount of Rs. 56261546/- which is the amount of capital nature and as such not taxable in the hands of investor by treating the same nature of income like LTCG, STCG, Dividend and other income such as interest etc. and as such to be taxed as per the provisions as applicable under different heads of income meaning thereby a person who makes investment in the VCC and VCF,. the assessee in this case, earned the income out of such investment, which income shall be treated as if the investment was directly in the VCU and VCF and VCC is only a pass through vehicle. So, the assessee has rightly taken the net income for tax at Rs. 11,97.38,454/- by subtracting the amount of Rs. 5,62,61,546/- and the assessee is liable to be taxed accordingly. So, Ld. CIT(A) has erred in holding that the appellant's share in the payment of Rs 5.62,61,546/- (17,60,00,000 - 11,97,38,454) @ 22.73% i.e. Rs. 1,27,88,250/- as income from other sources in the hands of assessee, which is required to be assessed in view of the provisions contained u/s 115U of the Act. So, we determine the grounds No. 3 of both the appeals in favour of the assessee.”
In , similar grievance relates to denial of exemption u/s 10(34) of the Act which is identical to Ground No. 1 in which is identical to Ground No. 1 of ITA No. 3284/DEL/2012 and 5705/DEL/2010. For our detailed reasons given hereinabove, the same is decided in favour of the assessee and against the revenue.
In so far as charging of interest u/s 234B of the Act is concerned, the same is consequential and the Assessing Officer is directed to consider the same as per provisions of law.
In the result, the appeals of the assessee in ITA Nos.
5332/DEL/2011 and 1249/DEL/2014 are allowed.
The order is pronounced in the open court on 16.07.2020.