I-VEN MEDICARE INDIA PVT LTD ,BANGALORE vs. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-11(3), BANGALORE

ITA Nos.408,2677 & 976(B)/2018 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES : “B”, BANGALORE BEFORE SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SMT.BEENA PILLAI, JUDICAL MEMBER

ITA Nos.408, 2677(Bang)/2017 & 976(Bang)/2018 (Assessment years : 2009-10,2011-12,2012-13 & 2013-14) M/s i-VEN Medicare India Pvt.Ltd., 10th Floor, Prestige Obelisk, No.3, Kasturba Road, Bengaluru-560 001 Appellant Pan No.AABCI7266A Vs Deputy Commissioner of Income Tax, Circle-11(3), Bangalore Respondent

Appellant by : Shri H.N. Khincha, CA Revenue by : Miss. Neera Malhotra, CIT Date of hearing : 08-07-2019 Date of pronouncement :

O R D E R PER BEENA PILLAI, JUDICIAL MEMBER : Present appeals has been filed by assessee against consolidated order dated 06/10/17 passed by Ld.CIT(A)-3, Bangalore for assessment years under consideration, on following grounds of appeal: ITA No.408(B)/2017 (Assessment year : 2011-12)

ITA Nos.408,2677 & 976(B)/2018 2 The learned assessing officer has erred in passing the order in the manner passed by him and the learned CIT(A) has erred in confirming the same. The orders passed are bad in law and are liable to be quashed. 2.1. In any case and without prejudice the learned Assessing Officer had erred in treating the capital gain earned on sale of investments as income under the head Business and the learned CIT(A) has erred in confining the same on the facts and circumstances of the case and the law applicable The addition as made / sustained by the authorities below being totally on erroneous premise is to be deleted and the loss as returned by the appellant is to be accepted. 2.2 In any case and without prejudice, the authorities below have erred in not appreciating the fact that the appellant is a wholly owned subsidiary of venture capital fund and formed to make investments in Healthcare provider companies. On proper appreciation of facts and the law applicable, the conclusion drawn by the authorities below that investments made in health care provider companies is in the nature of business is wholly erroneous both on facts and law applicable is to be rejected. 2.3.The Authorities below have erred in not considering that: a) the shares held were capital assets and not of business asset. b) the appellant has shown these shares as investments and not as stock in trade. c) most of the shares were held for a significant period of time. d) there are no borrowed funds. e)most of the shares were held for a significant period of time there are no borrowed funds The learned assessing officer has erred in passing the order in the manner passed by him and the learned CIT(A) has erred in partly confirming the same. The orders passed to the extent confirmed are bad in law and are liable to be quashed.

2.3 The Authorities below have erred in not considering that:

a) the shares and units of mutual fund held were capital assets and not of business asset.

ITA Nos.408,2677 & 976(B)/2018 3 b) the appellant has shown these shares as investments and not as stock in trade.

c) the shares were held for a significant period of time. d) there are no borrowed funds On proper appreciation of facts and circumstances of the case and the law applicable, it would be clear that the gains on sale of shares and units of mutual fund are to be taxed as capital gains only. 2.4. The learned authorities below have erred in holding that: e) the appellant is engaged in medical and health care services; f)investing in the shares of similar company would amount to business activity; g)the gains on sale of such shares and units of mutual fund is of the nature of business income; Such conclusions being erroneous on facts and contrary to applicable law are to be disregarded. 2.5. The appellant never carried on any business in dealing in shares / mutual funds. There was no adventure in the nature of trade or commerce. 3. In any case, the ld. AO erred in holding that the appellant I not eligible to carry B/f unabsorbed losses/depreciation by setting off the same against alleged income assessed as business income and the ld. CIT(A) has erred in confirming the same. The action/conclusion of authorities below being not in accordance with law and erroneous on facts is to be disregarded.

ITA No.976(B)/2018(AY: 2011-12)

ITA Nos.408,2677 & 976(B)/2018 4 The learned assessing officer had erred in passing the order in the manner passed by him and the learned CIT(A) has erred in confirming the same. The orders passed to the extent confirmed are bad in law and are liable to be quashed. 2.1 In any case, the learned assessing officer had erred in treating the transfer of shares as business activity and the learned CIT(A) has erred in confirming the same by relying upon the earlier year's appellate orders. On the facts and circumstances of the case and the law applicable, the conclusion drawn by the authorities below being totally on erroneous premise is to be deleted. 2.2 The Authorities below have also erred in not considering that: a) the shares held were capital assets and not of business asset. the appellant has shown these shares as investments and not as stock b) in trade. c) The shares were held for capital appreciation. d) there are no borrowed funds

On proper appreciation of facts and circumstances of the case and the law applicable it would be clear that the sale of such shares should be treated as transfer of capital assets only. 2.3 The learned assessing officer had erred in holding that: a) the appellant is engaged in medical and health care services; b) investing in the shares of similar company would amount to business activity; 3. the gains / loss on sale of such shares is of the nature of business income; and the learned CIT(A) has erred in confirming the same relying upon the appellate orders of the earlier years. Such an action being contrary to both on facts and law applicable are to be negated. 4) In any case and without prejudice the assessing officer had erred in considering the income/loss from transfer of share at Nil, thus ignoring the very cost incurred to acquire such shares and the learned CIT(A) has erred in confirming

ITA Nos.408,2677 & 976(B)/2018 5 the same on the ground that the purchase of shares was made in FY 2007- 08 and such cost relates to relevant year. The conclusion drawn is totally erroneous both on facts and law applicable is to be ignored and the calculation as done/ confirmed by the authorities below is to be rejected. 5)The appellant has computed the Long Term Capital Loss of Rs. 4,13,44,586/- in accordance with law and is eligible to carry forward the same to next year as claimed in the return of income and same is to be allowed without any variation. 6) In view of the above and on other grounds to be adduced at the time of hearing it is requested that the order passed be quashed or at least treating the transfer of shares as business activity be rejected, the transfer of such shares be treated as transfer of capital asset, capital loss be computed accordingly and all other necessary relief be given to appellant.

ITA No.2677(B)/2017 (AY: 2012-13)

The learned assessing officer has erred in passing the order in the manner passed by him and the learned CIT(A) has erred in confirming the same. The orders passed are bad in law and are liable to be quashed. 2.1. In any case and without prejudice the learned Assessing Officer had erred in treating the capital gain earned on sale of investments as income under the head Business and the learned CIT(A) has erred in confining the same on the facts and circumstances of the case and the law applicable The addition as made / sustained by the authorities below being totally on erroneous premise is to be deleted and the loss as returned by the appellant is to be accepted. 2. 2.In any case and without prejudice, the authorities below have erred in appreciating the fact that the appellant is a wholly owned subsidiary of venture capital fund and formed to make investments in Healthcare provider companies. On proper appreciation of facts and the law applicable, the conclusion drawn by the authorities below that investments made in health care provider companies is in the nature of business is wholly erroneous both on facts and law applicable is to be rejected. 2.3.The Authorities below have erred in not considering that:

ITA Nos.408,2677 & 976(B)/2018 6 a)the shares held were capital assets and not of business asset. b)the appellant has shown these shares as investments and not as stock in trade. c)most of the shares were held for a significant period of time. On proper appreciation of facts and circumstances of the case and the law applicable it would be clear that the gain on sale of shares are to be taxed as capital gains only. On proper appreciation of facts and circumstances of the case and the law applicable, it would be clear that the gains on sale of shares and units of mutual fund are to be taxed as capital gains only. 2.4. The learned authorities below have erred in holding that: a) the appellant is engaged in medical and health care services; b) investing in the shares of similar company would amount to business activity; c) the gains on sale of such shares and units of mutual fund is of the nature of business income;

Such conclusions being erroneous on facts and contrary to applicable law are to be disregarded.

2.5. The appellant never carried on any business in dealing in shares / mutual funds. There was no adventure in the nature of trade or commerce. Thus the treatment of capital gains as business income is totally erroneous both on facts and law is to be rejected.

2.6 The learned authorities below have erred in not considering the facts that the gains on sale of units of mutual fund was accepted and assessed as income in nature of capital gain during the earlier years. 2.7 In any case and without prejudice, the learned authorities below have erred in not considering the Circular issued by CBDT that gain on transfer of unlisted shares are to be taxed under the head capital gains only. The action of the authorities below being contrary to law is to be disregarded and the capital gain/loss as offered by the appellant be accepted. 2.8. In any case and without further prejudice, the learned CIT(A) has erred in holding that nature of income from sale of mutual funds whether capital gains

ITA Nos.408,2677 & 976(B)/2018 7 or business income becomes academic in nature as the tax impact would remain same for the year under consideration. The Conclusion of CIT(A) though would not impact the year. under appeal but have bearing on subsequent assessment years hence such conclusion is required to be rejected. 3. The appellant denies the liability to pay interest U/s. 234B and 234C of the Act. The interest having been levied erroneously is to be deleted. 4. In view of the above and on other grounds to be adduced at the time of hearing, it is requested that the order passed be quashed or atleast treatment of gain/loss on sale of mutual funds/shares as business income be deleted, loss/gain under the head capital gains as returned be accepted, and interest levied be also deleted. Brief facts of the case are as under: 2. Assessee is been stated to be wholly owned subsidiary of India Advantage Fund-V which is a venture capital fund, registered with SEBI. It has been submitted, that during financial year 2007-08 India Advantage Fund-V proposed investment in 5 healthcare provider companies, either directly from the fund, or through special purpose vehicle created to fund investment in healthcare providing companies. It is submitted that, with sole intention, assessee was formed in July 2007. Referring to memorandum of Association, Ld.AR submitted that main objects of assessee are as under;  To carry on business of providing medical relief to public in all branches of medical schemes by all available means;  to purchase, lease or otherwise acquire, established, maintain, operate, run and or administer hospitals, medicare, health care, diagnostic, health aides and research, centres;

ITA Nos.408,2677 & 976(B)/2018 8  to carry out medical and clinical research by engaging in the research and development of all medical sciences and therapies;  to undertake, promote or engage in all kinds of research including clinical research and development work required to promote, assessed or engaged in setting up hospitals, health care centres and facilities for manufacturing medical equipment etc; to provide, encourage, any shade or promote facilities for the discovery, improvement or development of new method of diagnostic, understanding and prevention and treatment of diseases. 2.1 Amongst ancillary objects, it has been submitted that assessee performs following functions:  to conduct and to carry out experiments and to provide funds for research work and for scholarships, stipend, remuneration and/or other payments or aided to any person or persons engaged in research work, or work connected with or conducive to research and to encourage and to improve knowledge of the persons who are engaged or likely to be engaged in any medical or related profession so as to make available medical relief to the public at large.  To promote, manage, cooperate with or afford assistance to or otherwise assist the work of any other foundation, institution or body engaged in medical research treatment It has been submitted that assessee invested in following healthcare provider companies by investing in shares, which stands duly reflected in the balance sheet under the head investments during the years under consideration:

ITA Nos.408,2677 & 976(B)/2018 9 1. Vikram hospital’s private Ltd 2. Sahyadri Hospitals Ltd 3. Media Synergic Pvt. Ltd 4. RG Scientific Enterprises Ltd From written submissions placed in paper book, it is observed that for assessment year 2011-12 and 2012-13 assessee invested in all above four healthcare companies, and earned profit of Rs.30,11,55,63/- and loss of Rs.2,69,587/- respectively. For assessment year 2013-14 assessee invested in following 2 companies and earned loss on sale amounting to Rs.4,32,18,574/- 1. Media Synergic Pvt. Ltd., 2. RG Scientific Enterprises Ltd For sake of convenience, we refer to observations of Ld. AO for assessment year 2011-12. 3. Ld.AO observed that, for assessment year 2011-12 assessee sold certain shares of above companies held as long-term investments and credited a sum of Rs.1,31,15,563/- to profit and loss account as profit on sale of investments. A chart showing sale of shares held as long-term investment has been enclosed in the paper book for assessment year 2011-12 at page 106. 3.1 Ld.AO treated entire profit on sale of shares credited to P&L account as business income on the ground that, assessee is engaged in business of rendering medical and healthcare services and investment made in healthcare provider companies are requirement of assessee’s business. Ld.AO thus held that

ITA Nos.408,2677 & 976(B)/2018 10 Shares were held with motive of earning profit, and not to earn dividend income. It has been submitted by Ld.AR that similar addition has been made for all years under consideration. 4.Aggrieved by addition made by Ld.AO, assessee preferred appeal before Ld. CIT (A), who upheld view of the Ld.AO. 5.Aggrieved by order passed by Ld.CIT (A), assessee is in appeal before us. 6. Ld.AR submitted that, assessee is not trading in shares and securities and shares in these companies were held as investment in the balance sheet. It has been vehemently argued that investment was main objective of assessee as special purpose vehicle created by parent company. It has been submitted that there is no other activity other than making investments in healthcare companies suggested by, the parent company, India Advantage Fund-V. It has been submitted that assessee do not have any other investments carried out in any other companies other than healthcare companies, and that assessee did not have any intention to trade in shares. It is thus submitted that the activity carried on by assessee cannot be treated as business income. He placed reliance on various authorities in support of the contentions as under:

ITA Nos.408,2677 & 976(B)/2018 11 Sl.No Particulars 1 PCIT Vs Bhanuprasad D Trivedi (2018) 94 Taxmann.com 114(SC) 2 PCIT Vs Bhanuprsad D Trivedi (HUF)(2018) 87 Taxmann.com 137 (Gujarat) 3 PCIT Vs Telestar Investments (P)Ltd., (2017) 81 Taxmann.com 89 (Kar.) 4 CIT Vs Tejas Securities (2017) Taxman.com 486 (Ka.) 5 CIT Vs Bagmane Developers (P)Ltd., (2017) 88 Taxmnn.com 105(Pune-Trib.) 6 Suresh Babulal Shah(HUF) Vs DCIT (2016) 75 Taxmann.com 105 (Pune- Trib.) 7 ACIT Vs Jignesh Madhukant Mehta (2017) 83 Taxmann.com 349 (Mumbi- Trib.) 8 CIT Vs Trishul Investments LTd. (2008) 305 ITR 434(Mad-HC) 9 CIT Vs Distributors (Baroda) (P)Ltd. (1972) 83 ITR 377 (SC) 10 G.Venkataswami Naidu & Co., Vs CIT (1959) 36 ITR 594(SC) 11 CIT Vs Hindustan Industrial Agencies P.Ltd., 12 CIT Vs Gopal Purohit (2011) 336 ITR 287 13 Gopal Purohit Vs JCIT (2009) 122 TTJ 0087 14 Copy of Circular No.6/2016 dated 29-02-2016 15 Copy of Circular 225/12/2016 dated 02-05-2016

ITA Nos.408,2677 & 976(B)/2018 12 8. We have perused submissions advanced by both sides in the light of the records placed before us. It is observed that assessee invested in shares of specific healthcare provider companies, as mentioned hereinabove during years under consideration. From objectives of assessee in Memorandum of Association placed in paper books, it is observed that assessee was to purchase, lease or otherwise acquire, establish, maintain, operate, run, manage or administer hospitals, Medicare, health care, diagnostic, healthcare and research centres. Assessee thus invested in these companies with clear intention of furthering primary objective in expanding its business in healthcare sector. Further, it is also not denied that, these investments in specific companies are part of business agreement, as per its commitment to subscribe to shares, subject to fulfilment of certain conditions. Further, it is observed that assessee sold shares invested in these companies to India Advantage Fund-V, a trust holding majority of shares of assessee. 8.1 To verify actual intention of assessee behind these investments, we called for agreements entered into by assessee with these companies. Ld.AR produced all agreements relevant for years under consideration, and also submitted that, these were not considered by Ld.AO/Ld.CIT (A). 8.3 We are therefore inclined to set aside this issue back to Ld.AO. Ld.AO shall verify agreements and ascertained true intention of assessee behind such huge investments. Assessee shall by way of corroborative evidences establish its claim and if

ITA Nos.408,2677 & 976(B)/2018 13 satisfied Ld.AO shall consider the issue on the tests laid down by various courts relied upon by assessee. Grounds relating to interest u/s.234 is consequential in nature. Accordingly we allow these grounds raised by assessee for all years under consideration. 9. In the result appeal filed by assessee for all years under consideration are allowed for statistical purposes.

Order pronounced in open court 31-07-2019. Sd/- Sd/- (B.R.BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: the *am Copy of the Order forwarded to: 1.Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5. DR 6. ITO (TDS) 7.Guard File By Order

Asst. Registrar

ITA Nos.408,2677(B)/2017 & 976(B)/2018 14