The Tax Publishers2020 TaxPub(DT) 4043 (Mum-Trib)

INCOME TAX ACT, 1961

Section 10(23FB)

Merely because assessee had invested in Venture Capital Undertakings which were in real estate sector, it could not be said that assessee was also engaged in real estate business of purchase and sale of immovable property. More so, when the assessee has been registered with SEBI as a Venture Capital Fund and had invested its funds in the manner prescribed not only under section 10(23FB) but also under Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996. Accordingly, assessee's claim of exemption under section 10(23FB) was allowable.

Exemption under section 10(23FB) - Allowability - Investments were made by assessee in VCUs engaged in real estate activities -

Assessee a trust established under Indian Trust Act and registered with SEBI as a venture capital trust, claimed exemption under section 10(23FB)) in respect of income earned out of investments made in venture capital undertakings. AO denied exemption under section 10(23FB) on the ground that investments were made by assessee in VCUs engaged in real estate activities which was neither a service nor activity involved in production and manufacture of article or things and, therefore, assessee was not eligible to claim itself as VCUs as per VCF regulation. Hence exemption claimed by assessee under ection 10(23FB) was not allowable. Held: Assessee has been registered as a Venture Capital Fund by the SEBI in the year 2005. Therefore, it was regulated by SEBI (Venture Capital Funds) Regulations, 1996. As per definition of 'Venture Capital Undertaking' under clause 2(n) of said Regulation, applicable to the assessee as per section 10(23FB), Explanation (c) of the Act, only those companies which were engaged in business activities appearing in negative list under Third Schedule of said Regulation were not to be treated as Venture Capital Undertaking. A cursory glance of negative list under Third Schedule of Securities and Exchange Board of India (Venture Capital Funds) said Regulations, makes it clear that Venture Capital Undertakings in which assessee has made investment are not appearing there. Admittedly, all the Venture Capital Undertakings, wherein, assessee made investments were doing business in real estate sector. Real estate sector had been removed the negative list under Third Schedule of said Regulations, with effect from 5-4-2004. Further, merely because assessee had invested in Venture Capital Undertakings which were in real estate sector, it could not be said that assessee was also engaged in real estate business of purchase and sale of immovable property. More so, when assessee has been registered with SEBI as a Venture Capital Fund and had invested its funds in the manner prescribed not only under section 10(23FB) but also under Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996, assessee's claim of exemption under section 10(23FB) was allowable.

Relied:G.V.K. Biosciences Pvt. Ltd. v. Asstt. CIT (2014) 49 Taxmann.com 385 (Hyd) : 2014 TaxPub(DT) 755 (Hyd-Trib), Asstt. CIT v. Small Is Beautiful, (2013) 26 ITR (Hyd-Trib.) 41 : 2013 TaxPub(DT) 2347 (Hyd-Trib) and ITO v. Gujarat Information Technology Fund, (2011) 45 SOT 529 (Ahd-Trib) : 2011 TaxPub(DT) 1419 (Ahd-Trib).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14 & 2014-15

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