DCIT Vs Sundaram Alternative Opp Series High Yield Secured Debt Fund (ITAT Chennai)
Category II AIF Entitled to Section 10(23FBA) Relief Because AO Applied Wrong Legal Provisions; Processing Fee Not Automatically Business Income, Rules ITAT While Allowing AIF Exemption; ITAT Rejects Arbitrary Reclassification of Investment Returns as Business Income for AIF; Pass-Through Tax Benefit Restored Because Category II AIF Was Incorrectly Treated as Venture Capital Fund.
The Income Tax Appellate Tribunal (ITAT), Chennai, dismissed the Revenue’s appeals for Assessment Years 2020-21 and 2022-23 and upheld the orders of the Commissioner of Income Tax (Appeals) granting exemption under Section 10(23FBA) of the Income Tax Act to a SEBI-registered Category II Alternative Investment Fund (AIF).
The assessee, a Category II AIF constituted as a contributory trust and registered with SEBI, claimed exemption under Section 10(23FBA) on interest income, short-term capital gains, and processing fees earned during the relevant assessment year. The Assessing Officer (AO) denied the exemption by treating the entire income as “Profits and Gains from Business or Profession,” holding that the income should be taxed as business income rather than as capital gains or income from other sources. The AO also referred to the absence of details regarding investments and alleged discrepancies in the return of income.
