ITO Vs India Infrastructure Fund (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT) dismissed the Revenue’s appeal against the order of the Commissioner of Income Tax (Appeals), which had allowed the assessee’s claim of exemption under Sections 10(23FB), 10(34) and 10(35) of the Income-tax Act, 1961.
The assessee, a trust constituted under the Indian Trusts Act, 1882 and registered with the Securities and Exchange Board of India (SEBI) as a Venture Capital Fund (VCF) under the SEBI (Venture Capital Funds) Regulations, 1996, filed its return declaring nil income after claiming exemptions under the Act. During the relevant year, it earned long-term capital gains, short-term capital gains, dividend income from Venture Capital Undertakings (VCUs), distributed income on buy-back of shares, dividend income from units of liquid mutual funds and director sitting fees. It claimed exemption under Section 10(23FB) for income arising from investments in VCUs, under Section 10(34) for dividend income, under Section 10(35) for dividend income from mutual funds, and under Section 10(34A) for distributed income on buy-back of shares.
During assessment proceedings, the Assessing Officer issued a show cause notice proposing withdrawal of exemption claimed under Sections 10(34) and 10(35). The Assessing Officer alleged that the assessee had violated the objectives of its trust deed and the SEBI (VCF) Regulations by investing in mutual funds and further held that, having claimed exemption under Section 10(23FB), the assessee could not simultaneously claim exemptions under other clauses of Section 10. Although the Assessing Officer accepted the assessee’s status as a Venture Capital Fund and allowed exemption under Section 10(23FB) in respect of other eligible income from Venture Capital Undertakings, exemption under Sections 10(34) and 10(35) was denied on the ground that a Venture Capital Fund could not bifurcate its income for claiming multiple exemptions under Section 10.
