Case Law Details
DCIT Vs UTI India Fund Unit Scheme (ITAT Mumbai)
ITAT Mumbai held that exemption under section 10(23D) of the Income Tax Act is available to UTI India Fund Unit Scheme 1986 as it is one of the scheme listed at sr. no. 37 in schedule II of the Repeal Act.
Facts-
During the course of the assessment proceedings, Assessing Officer observed that the assessee has claimed exemption u/s. 10(23D) of the Act and observed that the section 10(23D) of the Act itself confirms that the Mutual Fund should be registered with Securities and Exchange Board of India (SEBI). AO observed that the Certificate of Registration submitted by the assessee is for UTI Mutual fund and not for assessee trust i.e. UTI India Fund Unit Scheme 1986. Thus, AO denied the exemption u/s. 10(23D) of the Act.
CIT(A) allowed the appeal of the assessee. Being aggrieved, revenue has preferred the present appeal.
Conclusion-
Held that the assessee fund is one of the schemes listed in Schedule II (Sr. No. 37) of the Repeal Act and vested with UTI Mutual Fund. With the above restructuring of the Act and since assessee was established to cater to the offshore funds it retained its identity separately from the other schemes and maintained separate books of accounts and continued with the same PAN. The assessee is registered under the various schemes listed in Schedule II of the UTI Mutual Fund which is listed at Sl. No. 37 shows that assessee’s scheme is one of the scheme approved by the SEBI and it need not have to have a separate registration by the SEBI. It is enough that the SEBI approves all the schemes equally under the Schedule II of the list which is vested with UTI Mutual Fund. Therefore, the observation of the Assessing Officer in order to grant exemption under section 10(23D) has to have a separate registration is uncalled for and the various documents submitted by the assessee proves that the offshore fund scheme maintained by the assessee is an approved unit by the SEBI. Therefore, we do not see any reason to interfere with the findings of the Ld. CIT(A). Accordingly, appeal filed by the revenue is dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. All these appeals are filed by the revenue against different orders of the Learned Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld. CIT(A)”] dated 28.03.2023 for the A.Ys. 2014-15, 2016-17, 2017-18 & 2018-19. Cross Objection is filed by the assessee for the A.Y. 2018-19.
2. Since the issues raised in all these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeals relating to Assessment Year 2014-15 as a lead Assessment year.
ITA NO. 1859/MUM/2022 (A.Y. 2014-15)
C.O. No. 92/MUM/2023 (A.Y. 2018-19)
3. Brief facts of the case are, Assessee filed its return of income on 24.09.2014 along with the Income & Expenditure Account, Balance Sheet and Audit Report in Form No. 10B declaring total income at ₹.Nil. The case was selected for scrutiny and notices u/s. 143(2) and 142(1) of Income-tax Act, 1961 (in short “Act”) were issued and served on the assessee. In response Authorised Representative of the assessee attended and submitted the relevant information as called for.
4. During the course of the assessment proceedings, Assessing Officer observed that the assessee has claimed exemption under section 10(23D) of the Act and observed that the section 10(23D) of the Act itself confirms that the Mutual Fund should be registered with Securities and Exchange Board of India (SEBI). In this regard, he observed that assessee submitted copy of Certificate of Registration received from SEBI. However, the Certificate of Registration submitted by the assessee is for UTI Mutual Fund and not for assessee Trust. Further, vide order sheet dated 15.12.2016, the assessee was informed that conditions laid down u/s 10(23D) of the Act are not fulfilled and why exemption should not be disallowed.
5. In response, assessee vide letter dated 16.12.2016 submitted as under: –
“5.3. In response to the above, assessee submitted its reply vide letter dated 16/12/2016, relevant portion of which is reproduced below:
“In this regard, we would like to further submit as under:
1) The erstwhile Unit Trust of India was established under the Unit Trust of India Act, 1953. The Unit Trust of India Act, 1963 was repealed by the Government of India by “The Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (the Repeal Act) and the notifications issued there under by which the UTI was succeeded, with effect from 01st February 2003, by its following successors:
(a) The Administrator of the Specified Undertaking of the Unit Trust of India (SUUTI), and
(b) The UTI Trustee Company Pvt Ltd., the Trustee Company of UTI Mutual Fund.
2) Pursuant to the restructuring of the UTI, the Schemes of the UTI were transferred to and vested in its successors. The Schemes listed in the Schedule I of the Repeal Act were transferred to and vested in the SUUTI and the Schemes listed in Schedule II of the Repeal Act were transferred to and vested in the UTI Mutual Fund with effect from 01st February 2003 (copy of the Repeal Act and the four Notifications dated 15th January 2003 are enclosed herewith as Annexure II).
3) We would like to submit that the UTI India Fund Unit Scheme 1986 is one of the Schemes listed at Sr.no.37 in Schedule II of the Repeal Act and is also vested with UTI Mutual Fund, as per the provisions of the Repeal Act, with effect from 1st Feb 2003.
4) UTO Mutual Fund is a Trust established under the Indian Trusts Act, 1882 and UTI Mutual Fund is registered with SEBI under registration number MF/048/03/01 dated 14/01/2003 (copy of registration certificate is enclosed as Annexure III).
5) UTI Trustee Company Pvt Ltd is the Trustee Company of the UTI Mutual Fund and UTI Asset Management Company Ltd is the asset manager of the schemes of the UTI Mutual Fund UTI Asset Management Company Ltd. manages all the schemes of the UTI Mutual Fund including the UTI India fund Unit Scheme 1986. This is as per the SEBI (Mutual Funds Regulations) 1996.
6) The entire income of the UTI Mutual Fund (all its Schemes) is totally exempt under section 10(23D) of the Income Tax Act, 1961.
7) The UTI India Fund Unit Scheme 1986 was launched in June 1986. There are other offshore schemes of UTI Mutual Fund also, UTI India Pharma Fund Unit Scheme and India Debt Opportunities Fund Unit Scheme which were launched in March 2005 and January 2006 respectively. For the UTI India Fund Unit Scheme 1986, necessary permissions of the RBI was received by letter dated 17th June 1986 (including approval of Government of India, as mentioned therein) (Copy of the RBI approval letter is enclosed as Annexure IV) SEBI by its letter dated 20 September 2004 provided its approval for the jogher offshore schemes of UTI Mutual Fund, UTI India Pharma Fund Unit Scheme and India Debt Opportunities Fund Unit Scheme (Copy enclosed as Annexure V. The UTI India Fund Unit Scheme 1986 was launched prior to the SEBI (Mutual Funds) Regulation 1996, hence no SEBI approval is applicable for this offshore scheme of UTI Mutual Fund.
8) The following is very clearly provided in clause 2 of the SEBI approval letter dated 20 September 2004:
“UTI Mutual Fund shall launch two schemes for investment in India and the units issued by these schemes shall be subscribed by the respective offshore funds only”.
Thus, all the offshore schemes including the UTI India Fund Unit Scheme 1986, India Pharma Fund and India Debt Opportunities Fund are the Schemes of UT! Mutual Fund.
9) We are also enclosing an opinion (Annexure VI) dated 12th October 2004 of Late Shri YV Chandrachud, Former Chief Justice of India, which interalia provides that:
a) The offshore schemes are the schemes of the UTI Mutual Fund, and
b) All the schemes of the UTI Mutual Fund will be entitled to all the tax benefits as are available to the schemes of a Mutual Fund registered under the Securities and Exchange Board of India Act 1992 or Regulations made there under pursuant to section 10(23D) of the Income tax Act1961.
10) In view of the above, it is submitted that the entire income of the UTI India Fund Unit Scheme 1986, one of the Scheme of the UTI Mutual Fund is entirely exempt from Income tax.”
6. After considering the above submissions, Assessing Officer observed that copy of Certificate of Registration received from SEBI, which reads as under: –
I. In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) read with the Securities and Exchange Board of India (Mutual Fund) Regulations, 1996 made there under the Board hereby grants certificate of registration to UTI Mutual Fund as a Mutual Fund.
II. Registration Code for the Mutual Fund is MF/048/03/01.
7. Assessing Officer further observed that on perusal of the above Certificate of Registration it is seen that certificate is applicable to UTI Mutual Fund and not to UTI India Fund Unit Scheme 1985 (PAN AAATU0040J). The assessee in its submission has mentioned that UTI India Fund Unit Scheme 1986 is one of the Schemes listed at Sr. No.37 in Schedule II of the Repeal Act and is also vested with UTI Mutual Fund, as per the provisions of the Repeal Act. Since assessee Trust is having separate PAN, it should have been registered separately for the reasons being, the same is not acceptable. Assessing Officer has rejected the above submissions and accordingly, he denied the exemption u/s.10(23D) of the Act. By denying the exemption under section 10(23D) of the Act Assessing Officer reworked the income of the assessee as under: –
| Particular | Rs. | |
| Income | 783804409 | |
| Less: | Total Operating Expenses | 48625763 |
| Profit and Gains of Business or Profession | 735178646 | |
| Income from Other Source | ||
| Misc. Income | 221 | |
| TOTAL Income | 735178867 | |
| Rounded Off to | 735178870 |
8. Accordingly, he assessed the income under section 143(3) of the Act at ₹.73,51,78,870/-.
9. Aggrieved assessee preferred appeal before the Ld. CIT(A) and before Ld. CIT(A) assessee has raised various grounds of appeal and filed detailed submissions which is reproduced in the appellate order. After considering the submissions of the assessee, Ld. CIT(A) allowed the appeal of the assessee by observing as under: –
“5. Finding & Decisions: –
5.1 Ground 1 is generic in nature and does not require any specific adjudication.
Ground 2 to 5
5.2 I have gone through the assessment order and the grounds of appeal raised by the appellant The mood point of appeal by the appellant is that the learned AO has contested that the appellant does not satisfy the conditions prescribed under section 10(23D) of the IT Act because the appellant has not obtained a specified registration from SEBI and thereby contested that appellant is a separate mutual fund therefore no deduction under section 10(23D) is permissible. Accordingly, the learned AO determined total income of Rs.73.51,78,870/-
5.3 In this back drop the learned AO carried out certain additional disallowances.
5.4 The trigger point of underlined additions carried out by learned AO was that the appellant has separate PAN and therefore following separate entity approach the appellant ought to have been registered as separate mutual fund under SEBI Act for claiming deduction under section 10(23D).
5.5 In response to the contentions of learned AO the appellant clarified that it is an offshore fund receiving investment from Mauritius and therefore for repatriations of funds outside India it was mandatory required to have PAN and therefore PAN was opted
5.6 The appellant carried out Income Tax related compliance such as filing return of income because it was having separate PAN and the same was done as part of procedural aspect.
5.7 The appellant also contested that as far as separate registration is concerned the same has been granted by SEBI in a composite manner in the name of UTI mutual fund and the registration code is MF/048/03/01.
5.8 The appellant also contested that it is a scheme of UTI mutual fund which came into existence much before SEBI and subsequently being approved by SEBI in the composite manner as discussed above.
5.9 The appellant also threw some light on its past journey commencing from 1963 under Unit Trust of India Act which was repealed multiple times and reviewed and it was succeeded by different statutes different Acts multiple times
5.10 The appellant stated that UTI was succeeded by two successor. One of them being Administrator of Specified Undertaking Of The Unit Trust Of India (SUUTI) and pursuant to such restructuring of UTI the appellant scheme (UTI India fund unit scheme 1986) was transferred to SUUTI with effect from 1st February, 2003. The same was also published in the gazette of India and has been verified by this office Thereafter repeal Act 2003 was effective.
5.11 Post such restructuring an application with SEBI was filed for grant of approval to UTI mutual fund and UTI AMC along with list of schemes which were managed by UTI mutual fund, in said application the appellant scheme was also enlisted. Basis this application UTI mutual fund was granted approval of SEBI with specified mentioning of appellant scheme as debt opportunities fund scheme.
5.12 The appellant had also received RBI scheme.
5.13 The appellants also submitted financial statements which were signed as UTI asset Management Company limited and not as UTI India fund unit scheme 1986.
5.14 Having regard to above detailed finding in appellant submission it is to be mentioned that the appellant is duly recognised scheme as per SEBI and the registration granted to UTI mutual fund is also valid for appellant scheme Nearly opting separate PAN for statutory requirement under Income Tax Act shall not lead to a conclusion that the appellant is a separate legal entity vis a vis its originator mutual fund.
5.15 In view of the above and having regard to the finding that when the appellant has valid SEBI approval and RBI approval, the findings of learned AO that the appellant is not eligible for deduction under section 10(23D) are not acceptable. Therefore the addition made by learned AO to determined total income at sum o f Rs.73,51,78,870/- is deleted in entirety.
5.16 Accordingly ground 2 to ground 5 are allowed.
Ground 6 & 7
5.17 The appellant contested that the learned AO erroneously taxed the income from unrealised gain for sum of Rs.54,04,75,289/-and dividend income of Rs.6,96,49,365/- and long term/short term capital gain from shares listed on stock exchange which were not taxable or subject to tax at special rates Also contested that the learned AO imputed interest under section 234B and 234C.
5.18 Since the appellant has been granted deduction under section 10(23D) adjudication on these additions is not warranted Resultant such additions carried out by learned AO are void ab initio.
5.19 Accordingly ground 6 & 7 of appellant are allowed.”
10. Aggrieved revenue is in appeal before us raising following grounds in its appeal: –
“1. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating the fact that as per provisions of section 10(23D) of the Income-tax Act it necessary that the Mutual fund should be registered with Securities and Exchange Board of India?
2. Whether on the facts and circumstances of the case and in law the Ld.CIT(A) erred in not appreciating the fact that the trust i.e M/s UTI India Fund Unit Scheme 1986 is separate entity having separate PAN, therefore, it is necessary for the trust that it should be separately registered with Securities and Exchange Board of India for claiming exemption u/s 10(23D) of the Income-tax Act, 1961?
3. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition made by the Assessing Officer of Rs. 54,04,75,259/- (unrealized gain), Rs.6,96,49,365/- (dividend income) and Long/Short term capital gain from listed equity shares without adjudicating the issue on merits.”
11. Assessee filed cross objection and raised following grounds: –
“1. On the facts and circumstances if the case and in law the ld CIT(A) has erred in not deliberating ground No. “C” read as without prejudice to above grounds, it is submitted that, in no event the appellant could be assessed for income earned by it on behalf of its unit holders/beneficiaries as the appellant being the specific trust was a pass through/ step through trust and in terms of section 161(1) of the Income Tax Act, 1961, the appellant could not be assessed qua income earned on behalf of its beneficiary”
2. On the facts and circumstances of the case and in law the ld CIT(A) has erred in not deliberating ground No. “D” read as
1) The ld. AO gravely erred in assessing the appellant despite the tax exemption available to the Appellant u/s 32 of UTI Act, r.w.s. 18 of the Repeal Act and the notification issued there under.”
2) Without to the above grounds and without admitting any liabilities it is submitted that in view of the facts of the present case and in law the appellant could even otherwise be not assessed for the income e in reference”
12. At the time of hearing, Ld. DR submitted that assessee is a separate legal entity. He brought to our notice Page Nos. 2 to 4 of the assessment order and brought to our notice detailed findings of the Assessing Officer. He vehemently argued that the assessee has a separate PAN and not a same entity for which SEBI has granted Certificate of Registration. It clearly shows that assessee does not have any registration to get exemption under section 10(23D) of the Act and as per section 10(23D) of the Act it is mandatory to have the Certificate of Registration with the SEBI and in absence of the same assessee is not eligible to claim exemption under section 10(23D) of the Act. Further, he brought to our notice Page No. 7 of the Ld. CIT(A) order and objected to the findings of the Ld. CIT(A) that the assessee is part of the UTI Mutual Fund. He prayed that the order of the Assessing Officer may be sustained.
13. On the other hand, Ld.AR of the assessee relied on the order of Ld.CIT(A). Further, Ld. AR submitted his written submissions, for the sake of clarity it is reproduced below: –
“The erstwhile Unit Trust of India (UTI) was a statutory corporation. investment body. It was set up on February 1, 1964 as per the Unit Trust of India Act of 1963.
Preamble of this Act is as under,
“An Act, to provide for the establishment of a corporation with a view to encouraging saving and investment and participation in the income, profit and gains accruing to the corporation from the acquisition, holding, management and disposal of securities.”
The primary objective of setting up this institution was to channelize investments through encouraging productive community savings, with these objectives in mind, The Unit Trust of India came out with various schemes which include UTI-64, Master shares, etc.
Section 21 of Unit Trust of India Act 1963 read as under:
The erstwhile Unit Trust of India was having the authority to launch various unit schemes under section 21 of the Unit Trust of India Act 1963. These unit schemes were also permitted to be launched for investment by persons resident outside India. UTT India Fund Unit Scheme 1986 was launched under Section 21 which read as under:
“21. (1) For the purpose of providing facilities for participation in the income, profits and gains arising out of the acquisition, holding, management or disposal of securities by the Trust: the Board may take one or more unit schemes, including one or more unit schemes for issuing units to persons resident outside India in such foreign currencies, as the Trust may deem fit. Unit Scheme
….
….
(3) The Board may, from time to time add to or otherwise amend any scheme made under sub-section (1)”
It may be observed that the erstwhile Unit Trust of India was having the authority to launch various unit schemes under section 21 of the Unit Trust of India Act 1963. These unit schemes were also permitted to be launched for investment by persons resident outside India.
The UTI to augment the offshore funds, came out with scheme for offshore fund under the scheme named UTI India Fund Unit Scheme 1986 (hereinafter referred to as “UTI India Fund Scheme 1986″/”Scheme”), since the Scheme was related to offshore fund, the PAN was obtained for UTI India Fund Scheme 1986, to facilitate foreign remittance.
UTI India Fund Scheme 1986 was launched by UTI as one of the schemes under section 21 of Unit Trust of India Act 1963.
It would be relevant to note that though the PAN was obtained for its Scheme named UTI India Fund Scheme, 1986 launched in 1986. date of establishment (date of Birth) is taken as 1 February, 1964 which is the date when the Unit Trust of India was established by Unit Trust of India Act, 1963. (Copy of the same(PAN Card) is attached for ready reference and record. (Ref. Page No. 101)
Since the UTI India Fund Scheme, 1986 was an offshore fund, approval from the Central Government and also from Reserve Bank of India was required and were obtained, and that the copies of approval from Central Government as well as RBI obtained for UTI India Fund Scheme, 1986 are attached. (Ref. Page No. 102 to 105)
Since the UTI India Fund Scheme 1986 was established under the UTI Act, 1963, the income earned therefrom was always exempt and claimed so pursuant to the provisions of section 32 Unit Trust of India Act, 1963. The relevant provision is given here under:
Section 32 in The Unit Trust Of India Act, 1963
32. Income-tax and other taxes.
(1) Notwithstanding anything contained in the Wealth tax Act, 1957 (27 of 1957), the Income-tax Act, 1961 (43 of 1961), the Super Profits Tax Act, 1963 (14 of 1963) the Companies (Profits) Surtax Act, 1964 (7 of 1964), or in any other enactment for the time being in force relating to income-tax, super- tax, super profits tax, surtax or any other tax on income, profits or gains-
(a) the Trust shall not be liable to pay income- tax, super- tax, super profits tax, surtax or any other tax in respect of any income, profits or gains derived by it from any source:
The Government of India constituted The Securities and Exchange Board of India as a non- statutory body on April 12, 1988. The Securities and Exchange Board of India was established as a statutory body in the year 1992 and the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) came into force on January 30, 1992. The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as “…to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”
After SEBI having been constituted all the securities came under the regulations formulated by SEBI. Though the SEBI came into existence UTI India Fund Scheme, 1986 did not come under the regulatory provisions of SEBI, since it was part and parcel of and one of the schemes of Unit Trust of India, which was governed by the provisions of Unit Trust of India Act, 1963.
(a) The UTI Act 1963 was repealed by the Government of India by The Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (the Repeal Act) and as per the notifications issued thereunder the UTI was succeeded, by its following successors, with effect from 01st February 2003: (1)The Administrator of the Specified Undertaking of the Unit Trust of India (SUUTI), and (ii) UTI Trustee Company Pvt. Ltd., being the trustee company of UTI Mutual Fund. (Ref. Page No. 106 to 121)
As a part of the Repeal Act, the specified company was formed by State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corporation of India subscribing in equal proportion to the share capital of the specified company namely UTI Trustee Company Private Limited a company incorporated under The Companies Act, 1956 having its registered office 13, Sir Vitthaldas Thackersey Marg, New Marine Lines, Mumbai – 400020, in its capacity as Trustee of the UTI Mutual Fund and by notification dated 15th January, 2003 issued by Department of Economic Affairs, the Company was notified as specified company being a Trustee of UTI Mutual Fund. (Ref. Page No. 124)
b) Pursuant to the restructuring of the UTI, all the Schemes of the UTI were transferred to and vested in its abovementioned two successors with effect from 01st February 2003. The Schemes listed in the Schedule I of the Repeal Act were transferred to and vested in the SUUTI and the Schemes listed in Schedule II of the Repeal Act were transferred to and vested in the UTI Mutual Fund, with effect from 01st February 2003. (Ref. Page No. 115 to 119)
c) The UTI India Fund Scheme 1986 is one of the Schemes listed in Schedule II U/Sr. No. 37 of the Repeal Act and was, therefore, also vested, by statute, with UTI Mutual Fund, as per the provisions of the Repeal Act, with effect from 1st Feb 2003. (Ref. Page No. 118)
d) UTI Mutual Fund is a trust established under the Indian Trusts Act, 1882, and UTI Mutual Fund, as a whole inter-alia constitutes of all the schemes (as were vested as per The Repeal Act in schedule II), is registered with SEBI under registration number MF-048-03-01 dated 14.01.2003. (Ref. Page No. 129)
e) UTI Trustee Company Pvt. Ltd. is the trustee company of the UTI Mutual Fund and UTI Asset Management Company Ltd. is the asset manager of the schemes of the UTI Mutual Fund. UTI Asset Management Company Ltd. manages all the Schemes of the UTI Mutual Fund including the UTI India Fund Scheme 1986.
(f) The UTI India Fund Scheme 1986 was launched in June 1986 by the erstwhile UTI. For the UTI India Fund Scheme 1986, necessary permissions of the RBI was received by letter dated 17th June 1986 (including approval of Government of India, as mentioned therein). (Ref. Page No. 102 to 105) The UTI India Fund Scheme 1986 was launched prior to enactment of the SEBI (Mutual Funds) Regulations 1996, hence no SEBI approval was applicable for this erstwhile offshore scheme of Unit Trust of India, which is then vested in UTI Mutual Fund.
(g) The Appellant would also like to draw the attention to certain regulations of the SEBI (MUTUAL FUNDS) REGULATIONS, 1996. Following are certain extracts of the SEBI MF Regulations.
Regulation 2 (q)
“”mutual fund” means a fund established in the form of a trust to raise monies through the sale of units to the public or a section of the public under one or more schemes for investing in securities, money market instruments, gold or gold related instruments, silver or silver related instruments, real estate assets and such other assets and instruments as may be specified by the Board from time to time.”
……..
Regulation 2 (u)
“scheme” means a scheme of a mutual fund launched under Chapter V;”
It may be observed from the above definitions that schemes are part of a mutual fund and thus schemes are not separate from a mutual fund but an integral part of a mutual fund, thus there is no question of a scheme being separate from a mutual fund. All the Schemes are an integral part of the mutual fund.
Regulation 9:
“Grant of Certificate of Registration – The Board may register the mutual fund and grant a certificate in Form
B on the applicant paying the registration fee as specified in Second Schedule
This clearly provides that the registration is granted to Mutual Fund and not the scheme as such,
Other regulation like Regulation 3, 10, 14, 17 etc. also clearly depict that schemes are part of a mutual fund and the registration certificate is applied and issued to a mutual fund and not to schemes individually.
Thus, the offshore schemes including the UTI India Scheme, 1986 is the Scheme of UTI Mutual Fund. Further post SEBI approval In compliance to the SEBI requirements the then Chairman had written to SEBI a letter dated 3rd February, 2003 and also sent draft of general notice to be published in news paper COPY OF THE LETTER written by the UTI- Chairman to SEBI and Central Govt. of India along with UTI MF BULLETIN- February 2003 and copy of the News Paper Indian Express Dated 07.02.2003 where the general notice was published for the knowledge of general public. ((Ref. Page No. 130 to 144)
(h) Since, the PAN was issued in the name of UTI India Fund Scheme 1986, the appellant was asked to furnish return of income and in view of the same the appellant had filed the return of income claiming the deduction under section 10(231) of the Income Tax Act, 1961.
(i) The appellant’s case was selected for scrutiny where the learned Assessing officer disallowed the appellant’s claim of deduction under section 10(23D) of the Income Tax Act, 1961, on the ground that the UTI India Fund Scheme 1986, was not registered with SEBI and according to him the registration granted to UTI Mutual Fund would not be sufficient to claim the benefit for the UTI India Fund Scheme 1986 under section 10(23D) of the Income Tax Act, 1961.
Against the aforesaid order of the AO, the appellant carried the matter before CIT Appeal who has allowed the claim of the appellant.
It is pertinent to note that when the UTI India Fund Scheme 1986 was launched, SEBI was not even in existence and that, the approval of scheme was to be obtained from Central Government and Reserve Bank of India which were duly obtained by the Unit Trust of India for UTI India Fund Scheme 1986 and therefore question of SEBI approval at the relevant
point of time was not applicable/possible and was not required. This fact could also be substantiated by referring to the provisions of section 10(23D) of the Act where apart from SEBI registration, sub-clause (ii) grants the benefit to mutual funds which were floated by public sector banks or public sector financial institutions after obtaining the RBI approval and approval from Central Government which were duly obtained.
This fact can also be verified from the press release dated 15th January, 2003 memoranda (Crux) of the same is as under. (Ref. Page No. 122 to 128)
UTI-II TRANSFERRED TO A NEW MUTUAL FUND SPONSORED BY SBI PNB, BOB AND LIC
The Government today signed an agreement with SBI, PNB, BOB and LIC to give effect to the provisions of the Unit Trust of India (Transfer of Undertaking and Repeal) Act 2002. On behalf of the Government of India, the agreement was signed by Shri U.K. Sinha, Joint Secretary (DEA) and on behalf of the Sponsors, the agreement was signed by Shri A.K Purwar, CMD-State Bank of India, Shri S.S. Kohli, CMD-Punjab National Bank Shri P.S Shenoy, CMD -Bank of Baroda and Shri SB. Mathur, CMD-Life Insurance Corporation of India. The salient features of the agreement are:
The Sale Consideration for the transfer and vesting payable by the sponsors to the Government will be determined within 4 months and payable within 3 years on the basis of valuation exercise by two sets of consultants/valuers.
The sponsors will be free to sell the rights to manage assets held by them to any third party complying with the statutory requirements including protecting the interest of the employees
Sponsors will be indemnified for a period of 3 years in respect of any liability, loss or damage that may be incurred by the sponsors, for actions pertaining to the period prior to the Appointed Day
Interest of the employees/officials will be protected by complying with Section 6 of the Act.
This operationalises the UTI (Transfer of Undertaking and Repeal) Act, 2002. The undertaking specified in Scheme 1 of the UTI will be transferred and shall vest in an Administrator, Simultaneously undertakings specified in Schedule II would vest in a specified company from the Appointed Day In accordance with the Act, State Bank of India, Punjab National Bank, Bank of Baroda and the Life Insurance Corporation of India have set up a mutual fund named UTI Mutual Fund, a Trustee Company called the UTI Trustee company. and also established the UTI Asset Management Company, in accordance with SEBI(Mutual Fund) Regulations Government notification regarding handing over the undertaking to this new Mutual Fund from the Appointed Day has also been issued
All NAV based schemes of UTI presently being run under SEBI Mutua l Fund Regulations, and mentioned in Schedule II of the Repeal Act will form part of the new Mutual Fund In order to ensure a smooth transition and factoring the accounting and software systems specifications, Government have today notified 1st of February, 2003 as the Appointed Day under the Repeal Act. Besides operational aspects this announces that UTI will, from the 1st February, 2003 stands bifurcated (Ref. Page No. 122 to 128)
Government has decided to appoint Shri M. Damodaran, as the first Administrator of the specified undertaking of UTI, to look after and administer the schemes forming part of the first schedule of the Repeal Act. Under this Government have continuing obligations and commitments to the investors which it shall uphold. The Board of Advisers to aid and advice the Administrator has also been notified today (Ref. Page No. 126).
As regards the separate accounting and audit of the scheme is concerned Regulation 50 of the SEBI (MUTUAL FUNDS) REGULATIONS, 1996 provides as under:
“50. (1) Every asset management company shall keep and maintain proper books of account, records and documents, for each scheme so as to explain its transactions and to disclose at any point of time the financial position of each scheme and in particular give a true and fair view of the state of affairs of the fund and intimate to the Board the place where such books of account, records and documents are maintained.
(1A) The financial statements and accounts of the mutual fund schemes shall be prepared in accordance with Indian Accounting Standards (IND AS) and any addendum thereto, as notified by the Companies (Indian Accounting Standards) Rules, 2015, as amended from time to time:”
It is in this regards that separate books of accounts were maintained and the same were also audited a as an independent scheme.
regulation 54 and 56 of the SEBI (MUTUAL FUNDS) REGULATIONS, 1996 are also in the same context under and these regulations require annual report/financial statements to be prepared scheme wise and the investors/unit holders of the Scheme are provided accounts of the schemes in which they are unit holders and not of the Schemes where they have not invested.
Section 18 of The Repeal Act, also provides as under:
“Section 18. Substitution in every Act, rule, regulation or notification by specified company or Administrator in place of Trust
In every Act, rule, regulation or notification in force on the appointed day, for the words “Unit Trust of India”, wherever they occur, the words, brackets and figures “specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 or “Administrator of the specified undertaking of the Unit Trust of India referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002″ as the case may be, shall be substituted.” (Ref. Page No. 112)
Similarly, para 5 of the Chapter II of the Repeal Act also provides that the undertaking of the Trust which is transferred to and which vests in the specified company or specified undertaking of the trust under section 4 shall be deemed to include all the business, assets, rights, powers, authorities and privileges etc. (Ref. Page No. 108)
Therefore, section 32 of the UTI Act 1963, read with para 5 of the Chapter II of the Repeal Act, and para 18 of the Chapter V of the Repeal Act, clearly mandates that the benefit of the UTI Act, 1963 would be available to the specified company.
Further, referring to section 10(23D) of the Income Tax Act, 1961, it would be clear that where the mutual fund is established by public sector bank and public financial institutions shall be entitled to the benefit of 10(23D) if the same is approved by the Government of India and Reserve Bank of India. Section 10(23D) reads as under:
“(23D) any income of
(1) a Mutual Fund registered under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made thereunder
(ii) such other Mutual Fund set up by a public sector bank or a public financial institution or authorised by the Reserve Bank of India and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf.
Explanation. For the purposes of this clause-
(a) the expression “public sector bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959). a corresponding new Bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980) and a bank included in the category “other public sector banks” by the Reserve Bank of India,
(b) the expression “public financial institution” shall have the meaning assigned to it in section 44 of the Companies Act, 1956 (1 of 1956)2,
(c) the expression “Securities and Exchange Board of India” shall have the meaning assigned to it in clause
(a) of sub-section (1) of section 2 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);”
By virtue of the Unit Trust of India (Transfer of Undertaking and Repeal) Act 2002, UTI Mutual Fund came into existence. UTI Mutual Fund was set up by LIC, State Bank of India, Punjab National Bank and Bank of Baroda who are also the sponsors of UTI Mutual Fund under the SEBI (Mutual Funds) Regulations 1996. All the four institutions are banks and financial institutions which have set up UTI Mutual Fund. UTI Mutual Fund has been registered with SEBI having registration no. MF/048/03/01 dated 14 January 2003.
The Unit Trust of India, established under section 3 of the Unit Trust of India Act, 1963 (52 of 1963) was also itself a Public Financial Institution as per provisions of section 4A of the Companies Act, 1956.
May it be so it is not in dispute that UTI India Fund Scheme,1986 did not have any independent identity de-horse the erstwhile Unit Trust of India when it was launched and there after UTI Mutual Fund in which this Scheme was vested by Unit Trust Of India (Transfer of Undertaking and Repeal) Act 2002. Therefore when the UTI Mutua l Fund is registered as a whole along with all the schemes vested in it with SEBI then none of its scheme (including UTI India Fund Scheme,1986) have any independent existence and can not be dissociated from the entity i.e. UTI Mutual Fund. Therefore, the action of the AO in treating the Scheme independent/separate of UTI Mutual fund is far fetched imagination of the AO. it is also pertinent to note that even the PAN issued for the Scheme is shown to have come into existence in 1964 i.e. the day on which UTI 1964 came into existence itself clearly indicate that UTI India Fund Scheme, 1986 was an integral part of the erstwhile Unit Trust of India and thereafter by virtue of the Unit Trust of India (Transfer o f Undertaking and Repeal) Act 2002, the scheme is vested in UTI Mutual Fund and the same automatically vested in migrated to UTI Mutual Fund and therefore even on this account also exemption under this PAN is primarily available to UTI Mutual fund itself and hence when UTI Mutual Fund is registered with SEBI the grant of exemption u/s 10(23D) cannot be denied by dissociating the scheme from the entity which is only required to be registered and is duly registered with SEBI under the SEBI Act 1992.
Thus the UTI Mutual Fund and the scheme UTI India Fund Scheme, 1986 satisfy both the conditions laid down u/s 10(23D) i.e. clause (i) and clause (ii) of section 10(23D) of the Act, and therefore in whatever way it is looked into the disallowance made by the AO is bad in law,
These facts have been rightly considered by the ld. CIT(A) while allowing the appellant’s claim of deduction u/s 10(23D) of the Act and therefore the same may be accepted. ”
14. Further, Ld. AR of the assessee submitted that the assessee has filed Cross objection in A.Y. 2018-19 and submitted that the cross objection become infructuous in case grounds raised by the revenue are decided in favour of assessee. Further, he brought to our notice Page No.6 of the appellate order and submitted that the above cross objection is raised against the order of appellate authority for not adjudication of the other grounds raised by the assessee.
15. Considered the rival submissions and material placed on record, we observe that the Assessing Officer has rejected the exemption under section 10(23D) of the Act for the reason that there was no Certificate of Registration from SEBI as per the requirement of the Act. We observe from the record submitted before us that the erstwhile Unit Trust of India which is an investment body under the Unit Trust of India Act of 1963 and it was having the authority to launch various unit schemes under section 21 of the Unit Trust of India Act 1963. Under this authority it was also permitted to launch for investment by persons resident outside India, with that authority UTI India Fund Unit Scheme 1986 (assessee) was launched which is one of the approved scheme under the Unit Trust of India Act, 1963 especially for investments by persons resident outside India and this scheme was launched to augment the offshore funds. Therefore, it is required to register for a separate PAN to facilitate foreign remittance. Further, it is important to note that these offshore funds were approved by Central Government as well as Reserve Bank of India and the income earned therefrom was always exempt and so pursuant to the provisions of section 32 Unit Trust of India Act, 1963.
16. The Securities and Exchange Board of India (SEBI) was established as a statutory body in the year 1992 which came into force on 30th January, 1992. After establishment of SEBI, all the securities came under the regulations formulated by SEBI. Subsequently, UTI Act 1963 was repealed by the Government of India by The Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 and as per the notifications issued, UTI was succeeded, by two (2) undertakings w.e.f 01st February, 2003,
(1) The Administrator of the Specified Undertaking of the Unit Trust of India (SUUTI), and
(2) UTI Trustee Company Pvt. Ltd.,
17. Further, we observe that after Repeal Act, specified company was formed by State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corporation of India subscribing in equal proportion to the share capital of the specified company namely UTI Trustee Company Private Limited, a company under The Companies Act, 1956. Pursuant to the above restructuring of the UTI, all the Schemes of the UTI were transferred to above mentioned two successors with effect from 01st February, 2003. The Schemes listed in the Schedule I of the Repeal Act were transferred to and vested in the SUUTI and the Schemes listed in Schedule II of the Repeal Act were transferred to and vested in the UTI Mutual Fund.
18. We further observe that the assessee fund is one of the schemes listed in Schedule II (Sr. No. 37) of the Repeal Act and vested with UTI Mutual Fund. With the above restructuring of the Act and since assessee was established to cater to the offshore funds it retained its identity separately from the other schemes and maintained separate books of accounts and continued with the same PAN. The assessee is registered under the various schemes listed in Schedule II of the UTI Mutual Fund which is listed at Sl. No. 37 shows that assessee’s scheme is one of the scheme approved by the SEBI and it need not have to have a separate registration by the SEBI. It is enough that the SEBI approves all the schemes equally under the Schedule II of the list which is vested with UTI Mutual Fund. Therefore, the observation of the Assessing Officer in order to grant exemption under section 10(23D) has to have a separate registration is uncalled for and the various documents submitted by the assessee proves that the offshore fund scheme maintained by the assessee is an approved unit by the SEBI. Therefore, we do not see any reason to interfere with the findings of the Ld. CIT(A). Accordingly, appeal filed by the revenue is dismissed.
19. With regard to cross objection filed by the assessee, since the main issue raised by the revenue is decided in favour of assessee, the cross objection filed by the assessee becomes academic. Therefore, the grounds raised in the cross objection are dismissed as such.
20. In the result, appeal filed by the revenue and cross objection filed by the assessee are dismissed.
21. Coming to the appeals filed by the revenue relating to A.Ys.2016-17, 2017-18 and 2018-19, since facts in these cases are mutatis mutandis, therefore the decision taken in A.Y. 2014-15 is applicable to these Assessment Years also. Accordingly, these appeals are dismissed.
22. In the result, appeals filed by the revenue are dismissed.
23. To sum-up, appeals filed by the revenue and cross objection filed by the assessee are dismissed.
Order pronounced in the open court on 24th November, 2023.
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