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Income Tax Appellate Tribunal, ‘ C’ BENCH : CHENNAI
Before: SHRI ABRAHAM P.GEORGE & SHRI GEORGE MATHAN
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:
These are cross appeals filed by the assessee and Revenue respectively directed against an order dated 10.02.2016 of ld. Commissioner of Income Tax (Appeals)-15, Chennai. & 1423/Mds/2016 :- 2 -:
Appeal of the assessee is taken up first for disposal. 2.
Assessee has taken two grounds of which first ground assails reopening done for the impugned assessment year. Ld. Authorised Representative for the assessee submitted that he was not pressing this ground. Accordingly, ground No.1 of the assessee is dismissed.
This leaves us with the solitary ground left, which assails taxing of short term capital gains out of sale of shares at 30%. Ld. Authorised Representative in support of this ground submitted that assessee had returned short term capital gains of �71,85,696/- on which he paid tax at the rate of 10%. It seems assessee had applied the rate of 10% based on Section 111A of the Income Tax Act, 1961 (in short ‘’the Act’’). However, ld. Assessing Officer was of the opinion that transaction statement of M/s. Stock Holding Corporation of India Ltd, furnished by the assessee, reflected purchase and sale of shares in one M/s. Accel Frontline Ltd on 19.04.2007, 20.04.2007, 24.04.2007 and 25.04.2007. As per the ld. Assessing Officer, assessee had certain other share transactions also done, through Rolling Market Lot and Inter Depository Transfers. Ld. Assessing Officer noted that some of these transactions had taken place on the very same day or within a short span of three to four days. According to him, assessee’s claim of STCG could be considered only if the period of holding of shares & 1423/Mds/2016 :- 3 -:
was ascertainable. Further according to him, assessee could not show that the sum of �71,85,696/- shown by it as short term capital gains was correct. As per the ld. Assessing Officer, whether the transactions giving rise to the surplus related to any investments required verification. He thus held that assessee could not claim concessional tax of 10% on the amount of �71,85,696/-. He held that assessee was liable to pay tax at the normal rate of 30% on such amount.
Aggrieved, assessee moved in appeal before the ld. Commissioner of Income Tax (Appeals). However this did not meet with any success. According to ld. Commissioner of Income Tax (Appeals), assessee did not give any details regarding actual delivery of the shares which were sold by it giving rise to the claim of short term capital gains.
Now before us, ld. Authorised Representative strongly assailing the orders of the lower authorities submitted that the sale of the shares which gave rise to short term capital gains arose out of transactions which were charged to Securities Transaction Tax (SET).
According to him, Sec. 111A of the Act clearly applied for such transactions and assessee was eligible for lower rate of tax of 10% on the capital gains arising from transfer of such shares. Further, & 1423/Mds/2016 :- 4 -: according to him, none of the lower authorities had found the claim to be wrong but had went by mere surmises.
Per contra, ld. Departmental Representative strongly supporting 6.
the orders of the authorities below submitted that assessee could not show the genuineness of the claim of short term capital gains.
We have considered the rival contentions and perused the 7. orders of the authorities below. Claim of the assessee is that short term capital gains arose on account of transfer of equity shares and such transactions were charged to Securities Transaction Tax. In other words, as per the assessee, the transactions giving rise to short term capital gains were done through recognized stock exchange and Securities Transaction Tax were paid on such transactions. Section 111A of the Act is reproduced hereunder:-
(1) Where the total income of an assessee includes any income chargeable under the head "Capital gains", arising from the transfer of a short-term capital asset, being an equity share in a company or a unit of an equity oriented fund and- (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force ; and (b) such transaction is chargeable to securities transaction tax under that Chapter, & 1423/Mds/2016 :- 5 -: the tax payable by the assessee on the total income shall be the aggregate of- (i) the amount of income-tax calculated on such short-term capital gains at the rate of fifteen per cent. ; and (ii) the amount of income-tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee : Provided that in the case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by such short-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such short-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such short-term capital gains shall be computed at the rate of ten per cent. (2) Where the gross total income of an assessee includes any short-term capital gains referred to in sub-section (1), the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such capital gains. (3) Where the total income of an assessee includes any short-term capital gains referred to in sub-section (1), the rebate under section 88 shall be allowed from the income-tax on the total income as reduced by such capital gains’’’.
We find that none of the lower authorities had addressed the issue whether the transactions of shares claimed by the assessee satisfied the conditions set out in Sec. 111A of the Act. Though the ld. Assessing Officer has stated in the assessment order that assessee could not prove the actual delivery of shares to it, how he came to such a conclusion is not clear. We are therefore of the opinion that the issue requires a fresh look by the ld. Assessing Officer. We set & 1423/Mds/2016 :- 6 -: aside the orders of the authorities below on this issue and remit it back to the ld. Assessing Officer to consider the claim afresh, in the light of the conditions specified Sec.111A of the Act. Ground No.2 is allowed for statistical purpose.
Now we take up the appeal of the Revenue.
Grievance of the Revenue is that ld. Commissioner of Income 9.
Tax (Appeals) allowed the exemption claimed by the assessee on the income earned by it from transactions relating to units in M/s. ICICI emerging sector fund.
Facts apropos are that assessee had claimed exemption 10. u/s.10(38) of the Act in respect of long term capital gains amounting to �1,36,16,621/-. As per the assessee the gains were on purchase and sale of units in ICICI emerging sector fund and in accordance with Form 64 issued by the fund manager. Contention of the assessee was that the transactions giving rise to the LTCG had suffered Securities Transaction Tax. However, ld. Assessing Officer was of the opinion that under Section 115U r.w.s. 10(23FB) of the Act, no exemption was available for such long term capital gains.
According to him, Securities Transaction Tax liability was borne by concerned Venture Capital Fund and not by the assessee. Further, according to him, Sec. 115U of the Act only supplemented Sec. & 1423/Mds/2016 :- 7 -:
10(23FB) of the Act. As per the ld. Assessing Officer, Sec. 10(23FB) of the Act was a specific provision concerning Venture Fund whereas Sec.
10(38) of the Act was a general provision. Claim of exemption from long term capital gains was disallowed. An addition of �1,36,16,621/- was made.
Aggrieved, assessee moved in appeal before ld. Commissioner of Income Tax (Appeals). Argument of the assessee was that by virtue of Sec. 115U of the Act, investments made by the assessee in Venture Capital Fund, had to be treated as though it were investments directly made by the assessee. According to the assessee, Venture Capital Fund authority, through Form No.64 issued by them, in accordance with Rule 12C of Income Tax Rules, 1962, had advised what was the share of income of the assessee, which accrued during the relevant previous year. Thus, according to him, assessee was eligible for the claim on accrual basis as certified by the Venture Capital Fund. Ld. Commissioner of Income Tax (Appeals), agreed with the above contentions of the assessee. According to him, assessee was justified in showing the income from its investment through Venture Capital Fund on accrual basis since assessee was all along following such accounting method in earlier years and ld. Assessing Officer had & 1423/Mds/2016 :- 8 -:
accepted such method. Ld. Commissioner of Income Tax (Appeals) directed the ld. Assessing Officer to allow the claim of the assessee.
Now before us, ld. Departmental Representative strongly assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that Sec. 115U r.w.s.10(23FB) of the Act was introduced on 01.04.2001 prior to the introduction of Sec.10(38) of the Act which came into statute only on 01.04.2005. As per the ld. Departmental Representative from 01.04.2005 there was no exemption available for such transactions, since Securities Transaction Tax liability was borne by the Venture Capital Fund and not by the assessee. Further, according to him, whether investments were made by the Venture Capital Fund in accordance with SEBI regulations and whether they had excluded the investments in listed securities had to be verified before allowing the claim. As per the ld. Departmental Representative, ld. Commissioner of Income Tax (Appeals) fell in error in allowing the claim.
Per contra, ld. Authorised Representative strongly supported 13.
the orders of the authorities below.
We have considered the rival contentions and perused the 14. orders of the authorities below. It is not disputed that long term & 1423/Mds/2016 :- 9 -: capital gains of �1,36,16,621/-, on which assessee had claimed exemption, arose from its investments in a Venture Capital Fund called ICICI Emerging Sector Fund. Sec. 115U of the Act which deals with income accruing or arising or received by a person out of investments made in a Venture Capital Fund is reproduced hereunder:-
Section 115U:-
‘’1) Notwithstanding anything contained in any other provisions of this Act, any income received by a person out of investment made in 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. (2) The person responsible for making payment of the income on behalf of a venture capital company or a venture capital fund and the venture capital company or venture capital fund shall furnish, within such time as may be prescribed to the person receiving such income and to the prescribed income-tax authority, a statement in the prescribed form and verified in the prescribed manner, giving details of the nature of the income paid during the previous year and such other relevant details as may be prescribed. (3) The income paid by the venture capital company and the venture capital fund shall be deemed to be of the same nature and in the same proportion in the hands of the person receiving such income as it had been received by, or had accrued to, the venture capital company or the venture capital fund, as the case may be, during the previous year. (4) The provisions of Chapter XII-D or Chapter XII- E or Chapter XVII-B shall not apply to the income & 1423/Mds/2016 :- 10 -: paid by a venture capital company or venture capital fund under this chapter.
The case of the Revenue is that assessee could not have accounted income on accrual basis and income of Venture Capital Fund could be considered u/s.10(23FB) of the Act only if such Venture Capital Fund was granted a registration and regulated under Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996.
A reading of the Sub Section (1) of Sec. 115U of the Act clearly indicate that income accruing or arising or received by any person out of investments made by him in a Venture Capital Fund has to be treated on par with investments directly made by such Venture capital undertaking. Once the deeming provision comes into play, in our opinion it has to be given full effect. Section 10(23FB) of the Act gives exemption for income of a Venture Capital Fund if certain conditions are satisfied. Said Section reproduced hereunder:-
‘’ In Computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included:-
(1)................. (2)............... (3)................. & 1423/Mds/2016 :- 11 -:
23(FB) any income of a venture capital company or venture capital fund set up to raise funds for investment in a venture capital undertaking. Explanation 1.— For the purposes of this clause, (a) venture capital company means such company (i) 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 ; (ii) which fulfils the conditions as may be specified, with the approval of the Central Government, by the Securities and Exchange Board of India, by notification in the Official Gazette, in this behalf ; (b) 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 established 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 conditions as may be specified, with the approval of the Central Government, by the Securities and Exchange Board of India, by notification in the Official Gazette, in this behalf ; and (c) venture capital undertaking means such domestic company whose shares are not listed in a recognised stock exchange in India and which is engaged in the (i) business of (A) nanotechnology ;
(B) information technology relating to hardware and software development ; (C) seed research and development ; (D) bio-technology ; (E) research and development of new chemical entities in the pharmaceutical sector ; (F) production of bio-fuels ; (G) building and operating composite hotel-cum-convention centre with seating capacity of more than three thousand ; or & 1423/Mds/2016 :- 12 -:
(H) developing or operating and maintaining or developing, operating and maintaining any infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA ; or (ii) dairy or poultry industry ; By virtue of the above, income of a Venture Capital Fund is exempt provided it satisfied the conditions set out in clause (b) of Explanation
By virtue of the deeming provisions (1) of Sec. 115U of the Act income accruing to a person out of investments made in a Venture Capital Fund also gets the exemption u/s.10(23FB) of the Act.
Though the grounds of the Revenue say that compliance with Securities and Exchange Board of India (Venture Capital Funds)
Regulations, 1996 has not been established, what we find is that form No.64 specified in Rule 12C which is to be furnished by the Venture Capital Fund was filed by the assessee. Said Form 64 by necessary implication means that at the Venture Capital Fund had complied with the conditions set out in Explanation (1) to Section 10(23FB). Ld. Assessing Officer did not find anything wrong in the said form No.64 which is the Form set out by the Rules under sub-section 2 of Section 115U of the Act. We cannot also say that the income which is exempt u/s.10(23FB) of the Act had to be considered on receipt basis and not on accrual basis since Section 115U of the act takes within its ambit accrued income also. Ld. Commissioner of Income Tax (Appeals) in & 1423/Mds/2016 :- 13 -: our opinion was justified in allowing the claim of the assessee u/s.10(23FB) of the Act read alongwith Section 115U of the Act. We do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals).
In the result, appeal of the assessee is partly allowed for 16. statistical purposes, whereas that of Revenue is dismissed.
Order pronounced on Thursday, the 11th day of January, 2018, at Chennai.