Income Tax Appellate Tribunal - Mumbai
Ito 23(1)(2), Mumbai vs India Innovation Fund, Mumbai on 4 September, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "F"
BENCH, MUMBAI
BEFORE SHRI R. C. SHARMA, AM &
SHRI SANDEEP GOSAIN, JM
आयकरअपीलसं./ I.T.A. No. 3827/Mum/2015
(निर्धारणवर्ा / Assessment Year: 2011-12)
ITO - 23(1)(2) India Innovation fund
Mumbai The IL & FS Financial
बिधम/
Centre, Plot 22, G
Vs. Block, BKC Bandra(E),
Mumbai.
स्थायीले खासं ./जीआइआरसं ./ PAN/GIR No. AAATI7083F
(अपीलाथी/Appellant) : (प्रत्यथी / Respondent)
अपीलाथीकीओरसे/ Appellant by : Ms. Pooja Swaroop
प्रत्यथीकीओरसे/Respondentby : Shri Abhishek Tilak
सुनवाईकीतारीख/ : 31/07/2017
Date of Hearing
घोषणाकीतारीख /
: 04/09/2017
Date of Pronouncement
आदे श / O R D E R
Per Sandeep Gosain, Judicial Member:
The present Appeal filed by the revenue is against the order of Commissioner of Income Tax (Appeals)-32, Mumbai 2 I.T.A. No. 3827 /Mum/2015 India Innovation fund dated 27.03.2015 for AY 2011-12 on the grounds mentioned herein below:-
1. On the facts and circumstances of the case and in Law, the Ld. CIT (Appeals)has erred in treating the assesse as a determinate Trust instead of an A.O.P.;
2. On the facts and circumstances of the case and in Law, the Ld. CIT (Appeals)has erred in holding that the assesse is a revocable trust and not the A.O.P.;
3. On the facts and circumstances of the case and in Law, the Ld. CIT (Appeals)has erred in holding that the assesse is not an A.O.P. since the beneficiaries had not set up the Trust, they (beneficiaries) had not come together with the object of carrying on investment in a fund which was the object of the trust and there was no inter-se agreement between the beneficiaries of the fund;
4. On the facts and circumstances of the case and in Law, the Ld. CIT (Appeals)has erred in holding that income of the assesse is taxable in the hands of contributors! beneficiaries as section 161(1) of the I.T. Act, 1961, and not in its own hands in status of an A.O.P.;3
I.T.A. No. 3827 /Mum/2015 India Innovation fund
5. On the facts and circumstances of the case and in Law, the Ld. CIT (Appeals)has erred in holding that income received by the assesse from complex commercial lending business is not Income from Business and Profession', but Income from Other Sources"..
2. As per the facts of the present case, the assessee is a trust registered as venture capital fund with SEBI under SEBI (Venture Capital Fund) Regulations, 1996. The assessee has earned interest income of Rs. 1,17,16,237, which has been allocated to the contributors. The assessee filed its return of income declaring total income at Rs. NIL on 31.07.11. Subsequently, the case of the assessee was selected for scrutiny and after serving statutory notices and seeking reply of assessee, the AO passed assessment order u/s 143(3) thereby assessing the income at Rs. 1,17,16,327/- by making additions.
Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee. 4
I.T.A. No. 3827 /Mum/2015 India Innovation fund Now before us, the revenue has preferred the appeal by raising the above grounds.
Ground No. 1 to 4.
3. Since all the above grounds raised by the revenue are inter- connected and inter-related, therefore we thought it fit to dispose of the same through the present common order.
4. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by revenue authorities.
Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 4 to 4.13 of its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 4.9 to 4.13 of its order and the same is reproduced below:-
4.9. I have carefully considered the facts and circumstances of the case. In this case, the appellant has been formed as a Trust vide agreement dated 07.11.2008 for the purpose of making investments in companies promoting innovation in emerging technologies in India.5
I.T.A. No. 3827 /Mum/2015 India Innovation fund The appellant Trust would issue units to various contributors and invest the moneys collected. As per para 2.4 at page 13 of the Trust Deed dated 07.11 .2008, the object arid purpose of the Trust is to raise resources throughthe Fund to make Portfolio Investments. Further, the appellant has entered into variousContribution Agreements with the Investors wherein the Class A Units have been issued and subscribed. I find that all the ingredients that constitute the appellant being a Trust have been satisfied. The appellant is a trust set up under die Indian Trusts Act, 1882 by way of an Indenture of Trust which is registered under the Registration Act, 1908. Merely since the contributors to the trust are the same as the beneficiaries will not prejudice the fact that the appellant is a Trust. 4.10. In the decision of Bangalore ITAT in the case of Mis India Advantage Fund - VII (ITA 178/Bang/2012), the Hon'ble ITAT held that income earned by a fund set up as a revocable trust is to be taxed only in the hands of the beneficiaries as per the provisions of sections 61 to
63. It alsoheld that for a trust tobe a determinate trust. i \\t)uld be sufficient if the trust deed laid down that the beneficiaries would be the persons who had made. or had agreed to make, contributions to the trust in accordance with the contribution agreement, and their shares were capable of being determined based on the provisions of the trust deed. Further, the Trust could not be regarded as an Association of Persons (AOP) as the 6 I.T.A. No. 3827 /Mum/2015 India Innovation fund beneficiaries had not set up the trust; they had not come together with the object of carrying on investment in a mezzanine fund, which was the object of the trust; and there was no-.inter se agreement between the beneficiaries of the fund.
4.11. In the present case also, the Trust Deed mentions that Units shall be issued to the Contributors.-who are entitled to a specific share of the prof its. As per para 2.6 of the Trust Deed on page 15, the Trustee shall invite capital commitments of minimum Rs.5 Crore and receive capital contributions only by way of private placement of the units in the fund to the target investors. Hence, it is a case of a determinate Trust:
4.12. It needs to be examined whether the transaction constitutes a revocable transfer u/s 61-63 of the Act. A transfer is deemed revocable if It contains a provision for the retransfer of, or gives the transferor a right to re-
assume power over the whole or any part of any income or assets to the transferor, i.e., whether directly or indirectly, As per clause 2.9(c)(i)(c) on page 16, the Trust Deed states that the Contributors may Pass a resolution calling for the winding up of the Fund by majority vote. As per clause 2.9(d), in the even of winding up, the remaining proceeds shall be distributed to the Contributors. This shows that the Contributors can revoke the Trust at any time. Hence, it is a revocable Trust which is subject to die provisions of Section 61 to 63 of the Act. As per the provisions of section 61 any 7 I.T.A. No. 3827 /Mum/2015 India Innovation fund income arising from a revocable transfer is chargeable to tax in the hands of' the transferor. Hence. in iic ;rcseii1 ease. I am of the view that the income from contributions made by the beneficiaries of the Trust is taxable only in their hands and not in the hands of the appellant.
4.13. The A.O. was 01' the view that the appellant constitutes an AOP. 1 am of the view that the Trust could not be regarded as an Association of persons (AOP) as the beneficiaries had not set up the trust: they had not come together with the object of carrying on investment in a fund which was the object of the trust; and there was no inter se agreement tent between the beneficiaries of the fund. Thefact that the appellant filed its return of income with status of AOP is a mere technical defect and cannot vitiate the fact of the appellant being a Trust. I am of the view that the appellant is a revocable Trust and the income is taxable in the hand of the contributors / beneficiaries. Hence, no part of' the interest income could be taxed in the hands of the appellant Trust. In view of the above discussion, ground No. 1 of the appeal is allowed.
After analyzing the facts, arguments, and orders passed by revenune authorities, we find that the Ld. CIT(A) was satisfied from the fact that the assessee possessing all the ingredients that 8 I.T.A. No. 3827 /Mum/2015 India Innovation fund constitute the assessee as a trust. The Ld. CIT(A) while coming to the conclusion had relied upon the order passed by Hon'ble ITAT in the case of M/s India Advantage Fund-VII, ITA 178/Bang/2012 wherein it has been held that the income earned by a fund set up as a revocable trust is to be taxed only in the hands of the beneficiaries as per the provisions of section 61 to
63. It was further held in the said order that the trust could not be regarded as an AOP, as the beneficiaries had not set up the trust, they had not come together with the object of carrying on investment in a mezzanine fund, which was the object of the trust and there was no inter se agreement between the beneficiaries of the fund. The Ld. CIT(A) while appreciating the facts of the present case has rightly held that the trust deed mentions that units shall be issued to the contributors who are entitled to the specific share of the profits.
No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Since the Ld. CIT(A) while deciding these grounds have relied upon the orders passed by Hon'ble ITAT in identical circumstances and even on the principle of 9 I.T.A. No. 3827 /Mum/2015 India Innovation fund consistency also, the Ld. CIT(A) has rightly held that the income from the contributions made by the beneficiaries of the trust is taxable only in their hands and not in the hands of the assessee. Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A).
Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, these grounds raised by the revenue stands dismissed.
Ground No. 5
5. This ground raised by the revenue is against challenging the order of Ld. CIT(A) in holding that income of the assessee is taxable in the hands of contributors/beneficiaries as per section 161(1) of the I.T. Act, 1961, and not in its own hands in status of an A.O.P.
6. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by revenue authorities.
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I.T.A. No. 3827 /Mum/2015 India Innovation fund Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 5 of its order wherein the Ld. CIT(A) has categorically held that as per the facts of the case , the assessee was having ideal funds which were temporarily earning interest income, therefore Ld. CIT(A) after appreciating the facts of the case had concluded that such interest ought to be taxed under the head income from other sources. In support of its finding, Ld. CIT(A) relied upon section 161(1A) and held that this section does not create a charge of tax on the representative assessee, but only provides the rate of tax on its income where the same consists of business income and since it was held that the income is taxable in the hands of the contributors/beneficiaries, so the treatment of interest income as business income or income from other sources is not relevant.
No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A).
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I.T.A. No. 3827 /Mum/2015 India Innovation fund Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.
7. In the net result, the appeal filed by the revenue stands dismissed.
Order pronounced in the open court on 4th Aug, 2017.
Sd/- Sd/-
(R. C. Sharma) (Sandeep Gosain)
ले खासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनां कDated : 04.08.2017 Sr.PS. Dhananjay आदे शकीप्रनिनिनिअग्रे नर्ि/Copy of the Order forwarded to :
1. अपीलाथी/ The Appellant
2. प्रत्यथी/ The Respondent
3. आयकरआयु क्त(अपील) / The CIT(A)
4. आयकरआयु क्त/ CIT- concerned
5. यवभागीयप्रयतयनयि, आयकरअपीलीयअयिकरण, मुंबई/ DR, ITAT, Mumbai
6. गार्ड फाईल / Guard File आदे शधिुसधर/ BY ORDER, उि/सहधयकिंजीकधर .
(Dy./Asstt.Registrar) आयकरअिीिीयअनर्करण, मुंबई/ ITAT, Mumbai